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$8,000 Tax Credit for First Time Home Buyers-Deadline Approaching 06/01/10

The Worker, Homeownership, and Business Assistance Act of 2009 has extended the federally-supported tax credit of up to $8,000 for qualified first-time homebuyers purchasing a principal residence. It also authorizes a tax credit of up to $6,500 for qualified repeat or move-up homebuyers.

The purpose of this guide is to provide the basic details of the tax credit, so that you can help your homebuyers understand whether they may be able to benefit from this program.

What your homebuyers need to know

The credit is available for a limited time only. The new tax credit expires April 30, 2010 (buyers must be under contract by April 30, 2010, and close on or before June 30, 2010). That means you should encourage your homebuyers to act now. With an estimated cost of $10.8 billion over 10 years (estimated by the Joint Committee on Taxation), it is not likely that the credit will be extended beyond the existing deadline of April 30, 2010.

The expanded tax credit may provide new buying opportunities for first-time homebuyers AND repeat homebuyers. The tax credit, combined with low interest rates and affordable home prices, makes this a great time to buy. Eligible homebuyers may include:

  • Clients who are first-time buyers
  • Your past clients who want to “move up” to a new home
  • Previous clients who may want to downsize to a smaller home (Note: Qualified homebuyers who • purchase a home of lesser value than the one they sell may still be eligible for the credit.)

Higher income limits may allow more homebuyers to qualify. For sales occurring after November 6, 2009, income limits have increased from $75,000 to $125,000 for single taxpayers, and from $150,000 to $225,000 for married taxpayers who file jointly.1

The maximum eligible purchase price has increased. The new maximum of $800,000 allows more buyers to qualify. This new maximum purchase price limit applies to both first-time and repeat homebuyers.

The amount of the tax credit is different for first-time and repeat homebuyers.

  • First-time homebuyers may qualify for a credit of • up to $8,000 (10% of the purchase price of the home or $8,000, whichever is less).
  • Repeat/move-up homebuyers may qualify for a credit of • up to $6,500 (10% of the purchase price of the home or $6,500, whichever is less).

No repayment is required. The tax credit does not have to be repaid as long as homebuyers use their new home as their principal residence for at least three years after the purchase.

The filing deadline is extended for military personnel. Military personnel who have been deployed overseas for a minimum of 90 days in 2008 or 2009 would have until April 30, 2011, to claim the tax credit on their federal income tax returns.

New Homebuyer Tax Credit — Definitions

First-time homebuyer: defined under the new law as a buyer who has not owned a principal residence during the three-year period prior to the purchase. In the case of married taxpayers, both the homebuyer and his/her spouse must qualify as first-time homebuyers.

Qualified repeat or move-up homebuyer (or “longtime resident”): defined as a homeowner who has owned and resided in a home for at least five consecutive years of the eight years prior to the new purchase date. For married taxpayers, both the homebuyer and his/her spouse must qualify under this definition. However, repeat homebuyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.

Frequently Asked Questions (FAQs)

Q: How do homebuyers claim the tax credit?
A: Homebuyers can claim the credit on their federal income tax return. They should be sure to include documentation of the new purchase. No other applications or forms are required, and no preapproval is necessary.

Q: When can homebuyers claim the credit?
A: The credit may not be claimed before the closing date. Homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return (due April 15, 2009), or a 2009 tax return (due April 15, 2010). But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return.

Properties purchased in 2010 can be claimed on either a 2009 tax return (due April 15, 2010), or a 2010 tax return (due April 15, 2011). If the closing occurs after April 15, 2010, a taxpayer can still claim it on a 2009 tax return by requesting an extension of time to file or by filing an amended return. Homebuyers should consult their tax advisor for details.

Q: I read that the tax credit is “refundable.” What does that mean?
A: This means the homebuyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset.

Example: If a taxpayer who is a qualified first-time homebuyer expected a federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then the taxpayer would owe the IRS $1,000 on April 15th. If the taxpayer purchases a new home and qualifies for the $8,000 first-time homebuyer tax credit, he/she would receive a check for $7,000 ($8,000 minus the $1,000 owed).

Q: My clients currently own their own home and meet the eligibility requirements. But the home they would like to buy is priced at $825,000 firm. Will they be eligible for the $6,500 tax credit?
A: No. The maximum purchase price of a new home is capped at $800,000, which would make them ineligible for any portion of the credit.

Q: For current homeowners, does the new house need to cost more than the old one?
A: No. Repeat homebuyers will be eligible for a tax credit of up to $6,500 as long as they meet all eligibility criteria and the new home purchase price is less than $800,000.

Q: My clients owned and lived in their home for 10 years, but sold it two years ago and have been renting since then. Can they qualify for the credit if they buy a new home now?
A: Yes. Because they lived in their home for the five consecutive years out of the previous eight years, they will qualify for the credit.



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