RISMEDIA, January 7, 2010—As we begin 2010, home buyers
have something to look forward to and more importantly, take
advantage of - the extended and expanded home buyer tax
credit.
Originally created in 2008, the home-buyer tax credit has
evolved from a $7,500 credit, which had to be repaid by the
home buyer over the course of 15 years, to an $8,000 tax
credit with no repayment required in 2009. Now, for a limited
time in 2010, the $8,000 home buyer tax credit will still be
available to first-time home buyers and certain current
homeowners will also be eligible for a $6,500 credit.
To help everyone better understand the extended and
expanded home buyer tax credit, here are some highlights of
the changes.
Who can claim the credit?
“First-time home buyers” who purchase homes between
November 7, 2009 and April 30, 2010 are eligible for the
credit. To qualify as a “first-time home buyer” the
purchaser or his/her spouse may not have owned a residence
during the three years prior to the purchase.
For current homeowners purchasing a home during the same
time frame, they are also eligible for a tax credit, so long
as the home being sold or vacated was their principal
residence for five consecutive years within the last eight. To
elaborate, it must be the same home; it is not enough that
they have been homeowners for five consecutive years, they
must have been in the same home for five consecutive years.
Another key point is that the existing home does not need
to be sold. One must, however, occupy the new home as a
principal residence and do so for three years or risk
recapture of the credit. Also, the new home does not need to
cost more than the old home despite the concept that it is
directed at “move up” buyers.
How much is the credit and what are the income
limits?
The maximum allowable credit for first-time home buyers is
$8,000 or 10% of the sales price, whichever is less. For
current homeowners, it is $6,500 or 10% of the sale price,
whichever is less. Under the extended home buyer tax credit,
single buyers with incomes up to $125,000 and married couples
with incomes up to $225,000 may receive the maximum credit.
The credit decreases for single buyers who earn between
$125,000 and $145,000 and between $225,000 and $245,000 for
home buyers filing jointly. The amount of the tax credit
deceases as his/her income approaches the maximum limit. Home
buyers earning more than the maximum qualifying income –
over $145,000 for singles and over $245,000 for couples –
are not eligible for the credit.
What are the deadlines for qualifying for the
credit?
Under the extended home buyer tax credit, as long as a
written binding contract to purchase a home is in effect on
April 30, 2010, and the deal is closed by July 1, 2010, one
can claim the credit.
Will the tax credit need to be repaid?
No, the buyer does not need to repay the tax credit if
he/she occupies the home for three years or more. However, if
the property is sold during this three-year period, the full
amount of the credit will be recouped on the sale. Another
provision of the law waives the recapture provisions for
service members who receive orders that require them to move.
Are there any other critical provisions?
-There are three provisions people should be aware of:
-There is an $800,000 limitation on the cost of the home
-The purchaser must be at least 18 years old on the date of
purchase
-For a married couple, only one spouse must meet this age
requirement and dependents are not eligible to claim the
credit
Finally, as an anti-fraud measure, purchasers must attach
documentation of purchase to his/her tax return claiming the
credit. Normally this would be a copy of the HUD-1, but could
include other documents memorializing the settlement.
As with all tax matters, responsibility for complying with
the tax code belongs to the taxpayer. Real estate
professionals should recommend that their buyers consult their
tax professionals to ensure eligibility for the credit and the
proper way to claim the credit. For more information including
the required IRS forms please contact the Internal Revenue
Service at 800-829-1040.
