| |
On November 6th the
President signed into law, the ''Worker, Homeownership, and Business
Assistance Act of 2009.'' The new law extends and generally liberalizes
the tax credit for first-time homebuyers, making it a much more
flexible tax-saving tool. It also includes some crackdowns designed
to prevent abuse of the credit. These important changes could make
it easier for you or someone in your family to buy a home. And because
the changes generally aid buyers and aim to improve residential
real estate markets nationwide, they also could make it easier for
you or someone in your family to sell a home.
Homebuyer credit basics. Before the new law was
enacted, the homebuyer credit was only available for qualifying
first-time home purchases after April 8, 2008, and before December
1, 2009. The top credit for homes bought in 2009 is $8,000 ($4,000
for a married individual filing separately) or 10% of the residence's
purchase price, whichever is less. Only the purchase of a main home
located in the U.S. qualifies. Vacation homes and rental properties
are not eligible. The homebuyer credit reduces one's tax liability
on a dollar-for-dollar basis, and if the credit is more than the
tax you owe, the difference is paid to you as a tax refund. For
homes bought after Dec. 31, 2008, the homebuyer credit is recaptured
(i.e., paid back to the IRS) if a person disposes of the home (or
stops using it as a principal residence) within 36 months from the
date of purchase. Before the new law, the first-time homebuyer credit
phased out for individual taxpayers with modified adjusted gross
income (AGI) between $75,000 and $95,000 ($150,000 and $170,000
for joint filers) for the year of purchase.
Your guide to the revised homebuyer credit. The
new law makes four important changes to the homebuyer credit:
(1) New lease on life for the homebuyer credit. The homebuyer
credit is extended to apply to a principal residence bought before
May 1, 2010. The homebuyer credit also applies to a principal residence
bought before July 1, 2010 by a person who enters into a written
binding contract before May 1, 2010, to close on the purchase of
the principal residence before July 1, 2010. In general, a home
is considered bought for credit purposes when the closing takes
place. So the extra two-months (May and June of 2010) helps buyers
who find a home they like but can't close on it before May 1, 2010.
They can go to contract on the home before May 1, 2010, close on
it before July 1, 2010, and get the homebuyer credit (if they otherwise
qualify). Note that certain service members on qualified official
extended duty service outside of the U.S. get an extra year to buy
a qualifying home and get the credit; they also can avoid the recapture
rules under certain circumstances.
(2) The homebuyer credit may be claimed by existing homeowners
who are “long-time residents.” For purchases after
November 6, 2009, you can claim the homebuyer credit if you (and,
if married, your spouse) maintained the same principal residence
for any 5-consecutive year period during the 8-years ending on the
date that you buy the subsequent principal residence. For example,
if you and your spouse are empty nesters who have lived in your
suburban home for the past ten years, you are potentially eligible
for the credit if you “move down” and buy a smaller
townhome. There's no requirement for your current home to be sold
in order to qualify for a homebuyer credit on the replacement principal
residence. Thus, the replacement residence can be bought to beat
the new deadlines (explained above) before the old home is sold.
For that matter, you can hold on to your prior principal residence
in the hope of achieving a better selling price later on. The maximum
allowable homebuyer credit for qualifying existing homeowners is
$6,500 ($3,250 for a married individual filing separately), or 10%
of the purchase price of the subsequent principal residence, whichever
is less.
(3) The homebuyer credit is available to higher income taxpayers.
For purchases after November 6, 2009, the homebuyer credit phases-out
over much higher modified AGI levels, making the credit available
to a much bigger pool of buyers. For individuals, the phase-out
range is between $125,000 and $145,000, and for those filing a joint
return, it's between $225,000 and $245,000.
(4) There's a new home-price limit for the homebuyer credit.
For purchases after Nov. 6, 2009, the homebuyer credit cannot be
claimed for a home if its purchase price exceeds $800,000. It's
important to note that there is no phase-out mechanism. A purchase
price that exceeds the $800,000 threshold by even a single dollar
will cause the loss of the entire credit. The new purchase price
limitation applies whether you are buying a first-time principal
residence or are a qualifying existing homeowner purchasing a replacement
principal residence.
Other homebuyer credit changes. The new law includes
a number of new anti-abuse rules to prevent taxpayers from claiming
the homebuyer credit even though they don't qualify for it. The
most important of these are as follows:
... Beginning with the 2010 tax return, the homebuyer credit can't
be claimed unless the taxpayer attaches to the return a properly
executed copy of the settlement statement used to complete the purchase
of the qualifying residence.
... For purchases after Nov. 6, 2009, the homebuyer credit can't
be claimed unless the taxpayer has attained 18 years of age as of
the date of purchase (a married person is treated as meeting the
age requirement if he or his spouse meets the age requirement).
... For purchases after Nov. 6, 2009, the homebuyer credit can't
be claimed by a taxpayer if he can be claimed as a dependent by
another taxpayer for the tax year of purchase. It also can't be
claimed for a home bought from a person related to the buyer or
the spouse of the buyer, if married.
... Beginning with 2009 returns, the new law makes it easier for
the IRS to go after questionable homebuyer credit claims without
initiating a full-scale audit.
What hasn't changed. The tax law still gives you
the extraordinary opportunity to get your hands on homebuyer credit
cash without waiting to file your tax return for the year in which
you buy the qualifying principal residence. Thus, if you buy a qualifying
principal residence in 2009 you can treat the purchase as having
taken place this past December 31, file an amended return for 2008
claiming the credit for that year, and get your homebuyer credit
cash relatively quickly via a tax refund. Similarly, you can treat
a qualifying principal residence bought in 2010 (before the new
deadlines) as having taken place on December 31, 2009, and file
an original or amended return for 2009 claiming the credit for that
year. What also hasn't changed is the need for getting expert tax
advice in negotiating through the twists and turns of the new beefed-up
homebuyer credit. Please call us today for details on how the homebuyer
credit can help you or your family members.
To comply with the requirements of IRS Circular 230, we must inform
you that the information discussed above is not intended or written
to be used, and cannot be used by the recipient or any other taxpayer,
for the purpose of avoiding penalties that may be imposed under
the Internal Revenue Code or any other applicable tax law, or to
promote, market or recommend to another party any transaction, entity,
investment plan, arrangement or other matter.
.
|
