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Homebuyer Tax Credit Update!
On November 6, 2009, President Obama signed a
bill to extend the tax credit for first-time homebuyers (FTHBs) through June
30, 2010. The bill also opens up opportunities for others who are not buying a
home for the first time.
Who Gets What?
First-Time Homebuyers (FTHBs): First-time
homebuyers (that is, people who have not owned a home within the last three
years) may be eligible for the tax credit. The credit for FTHBs is 10% of the
purchase price of the home, with a maximum available credit of $8,000. Single
taxpayers and married couples filing a joint return may qualify for the full
tax credit amount.
Current Owners: The tax credit program now
gives those who already own a residence some additional reasons to move to a
new home. This incentive comes in the form of a tax credit of up to $6,500 for
qualified purchasers who have owned and occupied a primary residence for a
period of five consecutive years during the last eight years. Single taxpayers
and married couples filing a joint return may qualify for the full tax credit
amount.
What are the New Deadlines?
In order to qualify for the credit, all
contracts need to be in effect no later than April 30, 2010 and close no later
than June 30, 2010.
What are the Income Caps?
The amount of income someone can earn and
qualify for the full amount of the credit has been increased. Single tax filers
who earn up to $125,000 are eligible for the total credit amount. Those who
earn more than this cap can receive a partial credit. However, single filers
who earn $145,000 and above are ineligible. Joint filers who earn up to
$225,000 are eligible for the total credit amount. Those who earn more than
this cap can receive a partial credit. However, joint filers who earn $245,000
and above are ineligible.
What is the Maximum Purchase Price?
Qualifying buyers may purchase a property up to
$800,000 maximum.
What is a Tax Credit?
A tax credit is a direct reduction in tax
liability owed by an individual to the Internal Revenue Service (IRS). In the
event no taxes are owed, the IRS will issue a check for the amount of the tax
credit an individual is owed. Unlike the tax credit that existed in 2008, this
credit does not require repayment unless the home, at any time in the first 36
months of ownership, is no longer an individual’s primary residence.
How Much are First-Time Homebuyers (FTHB)
Eligible to Receive?
An eligible homebuyer may request from the IRS
a tax credit of up to $8,000 or 10% of the purchase price for a home. If the
amount of the home purchased is $75,000, the maximum amount the credit can be
is $7,500. If the amount of the home purchased is $100,000, the amount of the
credit may not exceed $8,000.
Who is Eligible fort FTHB Tax
Credit?
Anyone who has not owned a primary residence in
the previous 36 months, prior to closing and the transfer of title, is
eligible. This applies both to single taxpayers and married couples. In the
case where there is a married couple, if either spouse has owned a primary
residence in the last 36 months, neither would qualify. In the case where an
individual has owned property that has not been a primary residence, such as a
second home or investment property, that individual would be eligible. As
mentioned above, the tax credit has been expanded so that existing homeowners
who have owned and occupied a primary residence for a period of five
consecutive years during the last eight years are now eligible for a tax credit
of up to $6,500.
How Much are Current Home Owners Eligible to
Receive?
The tax credit program includes a tax credit of
up to $6,500 for qualified purchasers who have owned and occupied a primary
residence for a period of five consecutive years during the last eight
years.
Can Homebuyers Claim the Tax Credit in
Advance of Purchasing a Property?
No. The IRS has recently begun prosecuting
people who have claimed credits where a purchase had not taken place.
Can a Taxpayer Claim a Credit if the
Property is Purchased from a Seller with Seller Financing and the Seller
Retains Title to the Property?
Yes. In situations where the buyer purchases
the property, even though the seller retains legal title, the taxpayer may file
for the credit. Some examples of this would include a land contract or a
contract for deed. According to the IRS, factors that would demonstrate the
ownership of the property would include:
- Right of possession,
- Right to obtain legal title
upon full payment of the purchase price,
- Right to construct
improvements,
- Obligation to pay property
taxes,
- Risk of loss,
- Responsibility to insure the
property, and
- Duty to maintain the
property.
Are There Other Restrictions to Taking the
FTHB Credit?
Yes. According to the IRS, if any of the
following describe a homebuyer’s situation, a credit would not be
due:
- They buy the home from a
close relative. This includes a spouse, parent, grandparent, child or
grandchild. (Please see the question below for details regarding purchases from
“step-relatives.”)
- They do not use the home as
your principal residence.
- They sell their home before
the end of the year.
- They are a nonresident
alien.
- They are, or were, eligible to
claim the District of Columbia first-time homebuyer credit for any taxable
year. (This does not apply for a home purchased in 2009.)
- Their home financing comes
from tax-exempt mortgage revenue bonds. (This does not apply for a home
purchased in 2009.)
- They owned a principal
residence at any time during the three years prior to the date of purchase of
your new home. For example, if you bought a home on July 1, 2008, you cannot
take the credit for that home if you owned, or had an ownership interest in,
another principal residence at any time from July 2, 2005, through July 1,
2008.
Can Homebuyers Purchase a Home from a
Step-Relative and Still be Eligible for the Credit?
Yes. As long as the person they buy the home
from is not a direct blood relative, the purchase would be allowed.
If a Parent (Who Will Not Live In The
Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the
Credit?
Hope this great news is something that you or
someone you know can take advantage of while prices are still low for homes
throughout the United States!
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