Homebuyer Tax Credit - The Basics and The Details
Posted Nov 19, 2009 @ 1:22 am, Viewed by 352 Visitors, Read 399 Times.Note the title to this blog is not "First Time Homebuyers Tax Credit." That's because the new credit allows for current homeowners to get in on this deal too. Current homeowners can get up to a $6,500 tax credit. Current homeowners must have lived in their current or former home for five out of the last eight years. The five years must have been consecutive (all in a row, not two years, move somewhere else for a year and then move back for three years).
Basics and Details of the Homebuyer Tax Credit
Principal Residences Only
The credit is available for persons buying what will be their new PRINCIPAL residence. That is, they will live in the home. Second homes are not principal residences.
- Important Detail: Owners keeping their current homes and moving into their newly purchased homes will qualify for the credit. The newly purchased home must be the buyers' new principal residences.
Effective Dates
The Homebuyer Tax Credit is effective for sales closing from December 1, 2009 to June 30, 2010. Buyers must be in contract (their offer accepted) no later than April 30, 2010.
- Important Detail: Military and certain other Federal employees have an additional year to take advantage of the credit. They must be in contract no later than April 30, 2011 and close on their home purchase no later than June 30, 2011.
Maximum Purchase Price
$800,000 - No exceptions. If the purchase price goes over, the credit will not apply. Not even part of it.
Credit Amounts
Single buyers and married buyers filing jointly are eligible for up to $8,000 (first time homebuyer) and $6,500 (current homeowner). Married filing separately the credit is up to $4,000 and $3,250.
- Important Detail: Single persons and married couples get the same dollar amount of credit.
- Question: Should unmarried couples planning to buy a principal residence hold off on getting married until 2011? First impressions are that an unmarried couple may be eligible for $16,000 in credits instead of $8,000. Answer: NO - The credit is for 10% of the home's purchase price, up to $800,000. If an unmarried couple buys a home 50/50, they should each reflect HALF of the total as their purchase amount. Therefore, they are eligible for (up to) $8,000 whether unmarried or married.
- Another Scenario: What if, for some reason a couple planning to marry each plans to buy his/her own principal residence? In this case (in monetary terms) it might be worth deferring marriage until 2011 and then each buyer can take the tax credit up to $8,000.
- One More Scenario: A single person qualifies for the homebuyer tax credit and buys a home with another person who does not qualify for the tax credit. Later, the two marry. Does the qualifying person still get the tax credit? YES. Eligibility is determined on the date of the home purchase.
It's A Refundable Credit
This means you get the credit whether or not you have a tax liability. For example, let's say you make your qualified home purchase and are eligible for the full $8,000 credit. However your tax bill for 2009 (before applying the credit) comes out to only $1,000. The credit will cover the $1,000 tax due and you'll receive a refund of $7,000.
Primary Home Ownership Period
Your newly purchased home must be your primary home for 36 months (three years). If an owner sells the home or converts it to a second home during the 36 month period, the credit must be paid back to Uncle Sam.
- Important Detail: Military, Uniformed Services and Intelligence employees who receive official "extended duty service" orders and are unable to meet the primary home time period are exempt from the tax credit repayment.
Income Limits
Limits for the FULL tax credit are $125,000 for single persons and $225,000 for married couples. There's a $20,000 phaseout to the credit. Example: A single homebuyer earns $135,000 in 2010. His income is $10k over the $125,000 limit. The homebuyer will be eligible for half of the credit - $4,000 instead of $8,000.
- Important Detail: Remember the full $8,000 tax credit is based on a $800,000 home purchase. Purchasing a less expensive home, say $400,000 then going over the income limits by $10,000 will yield a credit of $2,000 rather than $8,000.
- Another Important Detail: "Income" as used in this section is your Modified Adjusted Gross Income (MAGI). Your MAGI might be higher than your Adjusted Gross Income (AGI). Items added back from AGI include traditional (not Roth) IRA contributions, student loan interest and tuition and some other less common items. Consult with your CPA or Tax Attorney to determine this amount.
Age Requirement
The buyer must be at least 18 years of age on the date of purchase. For married couples, at least one spouse must meet the age requirement.
Related Persons
Dependents cannot claim the tax credit and parents cannot claim the credit for a primary home purchase by their dependents (normally a son or daughter).
Purchases from related persons (your parents, grandparents, children etc.) are not eligible for the tax credit.
Acquisition of a principal residency by gift or inheritance is not eligible for the tax credit. In other words, if someone gave you the home you can't take the tax credit.
Parent Co-Signs the Loan
If a homebuyer is eligible for the tax credit and makes a qualifying purchase, he/she can take the homebuyers tax credit. A non-eligible parent can co-sign the loan, it will not affect the buyer's eligibility.
Conclusion
We've covered the basic rules of the homebuyer tax credit and some unusual situations. What at first seems like a simple credit has many facets. When considering your home purchase, please consult with a CPA or Tax Attorney to evaluate your particular tax situation.
The homebuyers tax credit coupled with low interest rates present a great opportunity for prospective homebuyers! Take advantage of the situation while you can.
Mike Bates - Realtor Associate
Coldwell Banker Pacific Properties
1909 Ala Wai Blvd #C-2
Honolulu, HI 96816
Rate this Post!
Share this Post
Print
Social Bookmarking2 Responses to “Homebuyer Tax Credit - The Basics and The Details”
Hi Becky,
Unfortunately the rules state that you are not eligible for the credit. You experienced a hardship and the IRS might be lenient with you. Consultation with a CPA and/or Tax Attorney is the best way to explore your options.
A less expensive route is to go to your local IRS office and explain the situation. Whatever they tell you, must be documented by an IRS notice or bulletin. If they give you verbal advice and it's not backed up by an IRS document, you might not be eligible for the credit.
Aloha, Mike
REW Blogs User Stats
Currently Online Users:
0
Total Users:
2,479
Entries:
8,007
Unique Views:
7,443,915
Total Views:
7,845,147
Total Comments:
9,875
Total REW Points:
510
Mike Bates is a realtor associate on the island of Oahu. He's lived on Oahu, Maui, Molokai and the Big Island for 28 years and is here to share his knowledge of the Hawaiian Islands with you. Read More
Contact Me
RSS Feed- This User's Stats
-
Blog Entries: 114Average Blog Rating: 0Unique Views: 157,586Total Views: 170,663Comments Posted: 81Comments Received: 120REW Points: 0
Top Rated
REW Blogs RSS Feed
I have a question of eligibility regarding the new I have a question of eligibility regarding the $6,500 “move up” home buyer tax credit. I closed on my home on December 31, 2003 and it is our primary residence. Last year, 2008, I decided to sell my house when I found out a Registered Sex Offender was relocated next door. As a single parent of a nine year old I temporarily moved in with friend in July of 2008. This also gave me an opportunity to renovate the house in order to sell it. My mail was also forwarded to my friends address during this time. I did not rent the house and continued to pay the mortgage, utilities and taxes on the property during the entire time. I also did not change my driver’s license or car registration address. I did not move out my furniture and spent most weekends and various other times staying at the house doing the renovations. We returned to the house in June of 2009 after the work was completed and also learned that the Sex Offender was sent back to prison. We are presently residing there full time. I have listed the property and looking to “move up” and find another house closer to work. Will this time we spent at my friends house exclude me from the $6,500 tax credit? I am concerned because the rule states “They must have lived in the same principal residence for any five-consecutive year period…..” As a single parent with a low income this tax credit would be very important to me.