It’s official: The American Recovery and Reinvestment Act Extension of 2009 has been updated to authorize not only a tax credit of up to $8,000 for qualified first-time homebuyers, but $6,500 to qualified current homeowners purchasing a new principal residence on or after November 7, 2009 and a completed contract before April 30, 2010 (with a closing on June 30, 2010).
Q: What’s the definition of a first-time homebuyer for the purpose of this law? A: The law defines a first-time homebuyer as a buyer who has not owned a principal residence during the three-year period prior to the purchase. (The date on the HUD-1 is the determining factor.)
For married taxpayers, the law tests the homeownership history of both the homebuyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse did, neither of you would qualify for the tax credit. However, if an unmarried couple jointly buys a home and one person owned a home in the past three years but the other did not, that person can designate the tax credit to the other person to claim on his/her individual tax return. The same is true if a parent (who already owns a home) co-signed on a loan with his/her child. The child could claim the first-time homebuyer tax credit.
Q: What’s the definition of a current homeowner for the purpose of this law?
A:Current home owners who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.
Q: If someone owns a vacation home but does not live in it as their primary residence, would they qualify for the tax credit? A: Yes. Owning a vacation home, second home, or rental that is not used as a primary residence does not disqualify the buyer if he/she can prove that it has not been used as a primary residence for the previous three years.
Q: Is a tax credit the same as a tax deduction? A: No. A tax credit is a dollar-for-dollar reduction in the amount of tax the taxpayer owes. If someone owed $8,000 in federal income taxes and received the $8,000 tax credit, he would owe nothing to the IRS for that filing period.
Q: How is the amount of the tax credit calculated? A: The tax credit is equal to 10 percent of the purchase price of the home, up to a maximum of $8,000.
Q: Are there income limits for claiming the tax credit? A: Yes. The credit is reduced for buyers with a modified adjusted gross income (MAGI) of more than $125,000 (filing single) and $225,000 for married taxpayers filing a joint return. There is no tax credit for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for MAGIs between these amounts.
Q: How do you determine your modified adjusted gross income (MAGI)? A: Modified adjusted gross income is your adjusted gross income (your total income for the year), minus certain deductions called “adjustments” but before itemized deductions. (Line 37 on IRS Form 1040)
Q: If my modified adjusted gross income (MAGI) is over the limit, can I receive any tax credit? A: Possibly. It depends on your income. Here’s where the formula gets deep. Suppose a buyer has a modified adjusted gross income of $138,000 which exceeds the $125,000 limit by $13,000. Dividing $13,000 by $20,000 (the formula) yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. If you multiply $8,000 by 0.35 means that the buyer is eligible for a partial tax credit of $2,800.
Q: Are There Additional Benefits For Those In The Military?
Yes.An exemption was created for those soldiers and their families who had to sell or stop using their home as their primary residence if they had to return to active duty.Those serving outside of the U.S. also will get an extra 365 days, basically April 2011 to claim their credit.
Q: What types of homes qualify for the tax credit? A: The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000/$500,000 capital gain tax exclusion for principal residences. These include single-family detached homes, attached housing, like condos and townhomes, manufactured/mobile homes, and houseboats.
Q: How do I claim the tax credit? A: When filing your federal income tax return, complete and attach Form 5405 to determine the tax credit amount, and claim that amount on Line 69 of the 1040 form.
Q: This tax credit is said to be “refundable.” What does that mean? A: When a tax credit is refundable, the credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. For example, if a first-time homebuyer had a tax liability of $6,000 and received a tax credit for $8,000, the taxpayer would receive a refund check for $2,000.
PRIVACY POLICY
Don Puryear is the sole owner of the information collected on this site. Neither Don Puryear nor the team associates will sell, share, or rent this confidential information to others. Your privacy is the primary issue for Don Puryear.
CONTACT POLICY
By submitting personal information such as name, address, phone number, email address and/or additional data, the client/prospect gives permission to Don Puryear or her authorized representatives to contact client/prospect by phone, U.S. Postal System, or email. Permission extends whether or not client/prospect is participating in a state, federal or other "do not contact" program of any type.
