First Time Home buyer Tax Credit Extended Into 2010!
Plus…A New Tax Credit for Certain Existing Home Owners!
It’s official. President Obama has signed a bill that extends the tax credit for first-time homebuyers (FTHBs) into the first half of 2010. This program had been scheduled to expire on November 30, 2009.
In addition to extending the tax credit of up to $8,000 through June 30, 2010, the extension measure also opens up opportunities for others who are not buying a home for the first time.
So Who Gets What?
The program that has existed for FTHBs remains intact with the one exception that more people are now eligible based on an increase in the amount of income someone may now earn.
Additionally, the 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.
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.
Higher Income Caps in Effect
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.
Maximum Purchase Price
Qualifying buyers may purchase a property with a maximum sales price of $800,000.
First-Time Homebuyer Tax Credit – Frequently Asked Questions
Here are answers to some commonly asked questions about the tax credit.
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.
What is the tax credit for first-time homebuyers (FTHBs)?
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 for the 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 do I claim the credit?
For those taking advantage of the tax credit in 2009, you may choose to either apply for the credit with your 2009 tax return or you may apply for the credit sooner by filing an amended 2008 tax return with Form 5405 (http://www.irs.gov/pub/irs-pdf/f5405.pdf).
Can you 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. Examples of this would include a land contract, contract for deed, etc. According to the IRS, factors that would demonstrate the ownership of the property would include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property.
Are there other restrictions to taking the credit?
Yes. According to the IRS, if any of the following describe your situation, a credit would not be due.
• You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
• You do not use the home as your principal residence.
• You sell your home before the end of the year.
• You are a nonresident alien.
• You 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.)
• Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• You 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, 2009, 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, 2006, through July 1, 2009.
Can you buy a home from a step-relative and be eligible for the credit?
Yes. Provided the person you are buying a home from is not a direct blood relative, the purchase would be allowed.
Can parent(s) who will not live in the property cosign for a mortgage for their child and the child that is a qualifying FTHB still be eligible for the credit?
Yes.
Can a separated spouse who has not owned a home for four years qualify for the FTHB tax credit if the spouse has owned a property anytime in the last three years?
No. However, the spouse may be eligible for the repeat buyer credit. The best path to take in any situation regarding income taxes is to speak with a professional tax preparer or CPA.
If you have any questions that fall outside the situations here, give me a call and if you do not have an accountant to speak with, I can refer you to one.
Michelle Bennett
Loan Officer
Bank of America
(818) 380-5220 direct
(818) 565-9456 cell
(818) 380-5101 efax
MichelleBennett914@gmail.com
www.facebook.com/michellebennett
“To give real service you must add something which cannot be bought or measured with money, and that is sincerity and integrity.”
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If you are a first time home buyer you can get $8,000 tax credit. But that’s not all. Since this is a brand new construction, you can qualify for additional $10,000 tax credit.
Here are some details about these tax credits:
The state gives a $10,000 state tax credit for a new-home purchase,
while a federal credit of up to 8,000 is available for first-time home
buyers. Please pass along to anyone who may find it useful.
UP TO $8,000 TAX CREDIT FOR FIRST TIME HOME BUYERS
1. The Tax Credit is for home buyers (either spouse if filing jointly)
who have NOT owned a principle residence during the three-year period
prior to the purchase. Ownership of vacation property or rental
property does not disqualify home buyers from this program.
2. The maximum credit is $8,000 or 10% of the home purchase, whichever
is less.
3. The credit is available for homes purchased on or after January 1,
2009 and before December 31, 2009.
4. To qualify for the full tax credit, married couples’ modified
adjusted gross income (MAGI) should be under $150,000 and single
filers’ MAGI should be less than $75,000. Partial tax credits may be
available for married couples with MAGI incomes of over $150,000 but
under $170,000 and single filers with incomes over $75,000 but under
$95,000. If married couples who qualify for the first-time tax credit
file separately, they would both claim 5% of the home purchase or
$4,000 each (whichever is less) on their tax returns.
5. Home buyers who qualify for this program, but who do not intend to
purchase a home till the end of 2009, may elect to alter their tax
withholdings (up to the amount of the of the tax credit) in order to
save up money for a down payment. However, if the purchase of the home
does not occur, the taxes must be repaid to the IRS.
6. There is no recapture or repayment clause IF the home is owned for
at least 36 months.
7. The effective date of purchase for new construction (even if buyer
owns title to the lot) is the date the owner first occupies the house.
So even if construction began in 2008, as long as the home and buyers
qualify for the tax credit, they will be eligible if they take
possession any time during 2009. However, new construction b
ought from the builder is onl y eligible if the settlement date
(closing) takes place between January 1, 2009 and December 31, 2009.
8. The law allows taxpayers to elect to treat qualified 2009 purchases
as a 2008 purchase so that they can receive the tax credit on their
2008 tax returns.
9. The full amount of the eligible tax credit is refunded to the buyer,
regardless of whether the buyer has paid an equivalent amount in taxes.
10. Consult your accountant if you have more questions regarding your
specific tax situation.
UP TO $10,000 STATE TAX CREDIT FOR NEW-HOME PURCHASE
The credit can be up to 5 percent of the purchase price to a maximum of
$10,000, and the credit can be applied directly to reduce the amount of
taxes owed.
Here are some basic details of the state tax credit:
1. To earn a home buyer tax credit, buyers must close escrow on a new,
previously unoccupied home between March 1, 2009, and Feb. 28, 2010.
2. These home buyers can apply the $10,000 tax credit to their state
income tax returns over three successive years ($3,333 each year),
beginning with tax year 2009.
3. The home builder must certify to the state that the home has never
been occupied.
4. Buyers must certify that they will occupy the home as their
principal residence for at least two years after the purchase.
5. The state Franchise Tax Board is the state agency responsible for
administering the tax credit. By today, the board will have details for
consumers on how to submit an application for the credit on its Web
site, http://www.ftb.ca.gov.
