Do I qualify for the first time home buyer tax credit? What is it?

Overview

􀂄 In 2008, Congress created a $7,500 First-Time>Homebuyer Income Tax Credit. It went into effect
April 8, 2008 and was set to expire July 1, 2009.

􀂄 One of the criticisms of the credit was that a homebuyer
who received the tax credit had to repay it over 15 years.

􀂄 It has been modified and has new rules effective for
homes purchased on or after January 1, 2009 and before
December 1, 2009.

􀂄 One of the key modifications is that in most circumstances
the homebuyer does not have to repay the tax credit.

The Modified Tax Credit

􀂄 Removed the repayment requirement, provided the
homebuyer does not resell the home for three years.

􀂄 Extended the time period for home purchases out to
December 1, 2009.

􀂄 Credit maximum was increased from $7,500 to $8,000.
The credit is calculated as 10% of the purchase price.
Example: If purchase price is $70,000, the credit is
$7,000. (Assume a property price of over $80,000 for the
rest of the discussion).

􀂄 It is still only for first-time homebuyers, and only for
properties that are the buyer’s primary residence.

First-Time Homebuyer Definition

􀂄 Again, the credit is for first-time homebuyers only.

􀂄 A homebuyer who owned another primary home at any
time during the three years prior to the date of purchase is
not eligible for the tax credit.

􀂄 For example, if a person purchases a home on
January 1, 2009 and has not owned, or had an
ownership interest in, another home at any time from
January 1, 2006 through January 1, 2009, he or she is
eligible for the tax credit, even if the new home is not
the person’s “first” home purchase.

Who cannot take this Tax Credit …Other than
Buyers Who Aren’t First-Time Homebuyers?

􀂄 A homebuyer whose income exceeds the phase-out range.

􀂄 This means joint filers with Modified Adjusted Gross
Income (MAGI) of $170,000 and above and other
taxpayers with MAGI of $95,000 and above.

􀂄 A homebuyer who buys a home from a close relative. This
includes a spouse, parent, grandparent, child or
grandchild.

>􀂄 A homebuyer who stops using the home subject to the
credit as a main residence.

􀂄 A nonresident alien.

􀂄 Note: A homebuyer who sells the home subject to the
credit within three years must pay back the tax credit

More on Income Limits

TYPE INCOME LIMIT PHASE OUT
START

Single Filers $95,000 $75,000

Married Filers $170,000 $150,000

This means that for singles making over $75,000 and couples
making over $150,000, the credit is proportionately reduced as
incomes approach $95,000 and $170,000 respectively.
So if a couple makes $165,000, the excess amount is used to
create a fraction 15,000/20,000 (.75) times the credit amount.
75% or 6 000 of disallowed They would
still get a tax credit of $2000

The Home

􀂄 The home subject to the credit must be the “main home”
(i.e.: principal residence, where the homeowner spends
50% or more of his or her time.) It can be a condo, single
family detached, co-op, townhouse or something similar.

􀂄 The home must be located in the United States.

􀂄 Vacation homes and rental properties are not eligible.

􀂄 For new construction, the “purchase date” is the date the
homebuyer occupies the home. So the move-in date
must be before December 1, 2009.

Recapture - 3 Year Residency

􀂄 If the home is resold prior to three years of ownership,
the tax credit must be repaid.

􀂄 This is an improvement from the prior credit. That
credit needed to be repaid in total over 15 years or the
balance had to be repaid on resale.

􀂄 This provision is designed to prevent flipping homes in
order to get the tax credit

Other Provisions

􀂄 The new credit is now also available to residents of the
District of Columbia.

􀂄 Purchasers who utilize state/local revenue bond financing
can now use the credit.

􀂄 Purchasers who bought before January 1, 2009 are still
subject to the terms of the repayable credit that was put
into effect in April 2008.

When Can You Claim the Credit?

􀂄 It can be claimed on your 2008 Tax Return
(to be filed by April 15, 2009), an amended
2008 Tax Return, or your 2009 Tax Return.

Conclusion

􀂄 The new credit is greatly improved compared to the old
credit.

􀂄 The credit does not need to be repaid as long as you
occupy the home for 3 years.

􀂄 Hundreds of thousands of potential buyers are estimated
to take advantage of the credit.

􀂄 For more info on the credit and the 2009 Stimulus
legislation visit http://tinyurl.com/5u9o4z or consult your tax advisor.

Caveat

This is based on information available as of
February 18, 2009 and is not meant to be tax or
legal advice.

As with any tax law change, check with a tax
advisor regarding availability, eligibility and
possible timing of any tax credit.

Re-distributed by Coldwell Banker Hickok & Boardman Realty · www.HickokandBoardman.com