California Tax Credit Extended

Homebuyer Credit Expanded and Extended

The Worker, Homeownership and Business Assistance Act of 2009, signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts.

Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.  

The new law also:

• Authorizes the credit for long-time homeowners buying a replacement principal residence.
• Raises the income limitations for homeowners claiming the credit.  

News release 2009-108 has the details, as do two new IRS videos in English and Spanish.

Members of the military, Foreign Service and intelligence community serving outside the U.S. should also be aware of new benefits in the law that apply particularly to them.

Following is general information for first-time homebuyers who settled on a new home on or before Nov. 6, 2009.

For 2008 Home Purchases

The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.

For 2009 Home Purchases

The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1. However, the new Worker, Homeownership and Business Assistance Act of 2009 has extended the deadline. Now, taxpayers who have a binding contract to purchase a home before May 1, 2010, are eligible for the credit. Buyers must close on the home before July 1, 2010. [Added Nov. 12, 2009]

For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer's main residence within a three-year period following the purchase.

First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return. News release 2009-27 has more information on these options.

General Information

Homebuyers who purchased a home in 2008, 2009 or 2010 may be able to take advantage of the first-time homebuyer credit. The credit:

• Applies only to homes used as a taxpayer's principal residence.
• Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

The credit is claimed using Form 5405, which you file with your original or amended tax return.

For the most up to date information on the Tax Credit visit: http://www.irs.gov/newsroom/article/0,,id=204671,00.html

Please consult your tax advisor / accountant to determine whether you are eligible for

this tax credit before making any decisions or changes to your tax status.

This information is for information only and should be verified by a tax professional.

Secrets of the homebuyer tax credit

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Written by: Marcie Geffner , On Friday January 15, 2010, 6:00 am EST

The basic rules of the federal homebuyer tax credit are not difficult to figure out. But the credit, which has been amended and extended, also contains more than a dozen little-known twists and traps that can affect whether a buyer will or won't qualify for the full amount of up to $8,000 for first-time buyers or $6,500 for repeat homeowners.

Here are some facts homebuyers should know about the rules that became effective Nov. 7, 2009:

• The amount of the credit technically isn't $8,000 or $6,500, but rather 10 percent of the purchase price of the house up to those amounts for a buyer who hasn't owned a home in the last three years or a homeowner who has occupied the same principal residence for five consecutive of the last eight years, respectively. For example, if the home cost $50,000, the maximum credit amount would be $5,000, not $8,000 or $6,500.
• Buyers can elect to claim the credit on their 2009 or 2010 tax return, whichever is more advantageous for them. Buyers who claim the credit on a 2009 return must file on paper forms, not electronically. Expect to wait 12 to 16 weeks for a refund from an amended 2009 tax return.
• The home may be a detached house, condominium, town house or co-op home or a mobile home, manufactured house or travel trailer that's affixed to land owned or leased by the homeowner. A mobile home or travel trailer that's on the road doesn't qualify.
• If the home costs more than $800,000, the tax credit drops to zero. That means the credit cannot be taken if the home costs more than that amount.
• The home cannot have been bought from a close relative of the homebuyer such as a grandparent, parent, spouse, child or grandchild.
• The buyer can rent out a portion of the home and still claim the tax credit if the home is also the buyer's principal residence.
• The income limits for the full tax credit have been increased to $125,000 for singles and $225,000 for married couples who file a joint tax return, effective Nov. 7, 2009. The higher income limits aren't retroactive. "Income" in this context refers to the homebuyer's modified adjusted gross income, or MAGI, as defined by the Internal Revenue Service. The MAGI might not be equal to the buyer's salary reported on, say, a W-2 tax form.
• Homebuyers whose income is up to $20,000 higher than those limits can qualify for a partial tax credit.  For example, a married couple who earned $235,000 could qualify for 50% of the $6,500 tax credit, or $3,250 because their income is at the midpoint between the full-credit limit of $225,000 and no-credit limit of $245,000 according to the IRS.

• A buyer who earns no taxable income or doesn't owe any federal income tax can still qualify for the tax credit and can file a tax return just to claim it.
• The tax benefit is not a deduction, but rather a refundable credit. That means a homebuyer could receive a refund check from the federal government up to the full amount of the credit.
• An unmarried homebuyer or at least one spouse of a married couple must be at least 18 years old to qualify for the tax credit.
• Individuals who are claimed as a dependent on someone else's tax return cannot qualify for the homebuyer tax credit.
• Nonresident aliens, as defined by the IRS, cannot claim the tax credit.
• Housing agencies in some 19 states offer qualified homebuyers short-term second mortgages that can be used to "monetize" the tax credit and apply the money to a down payment or closing costs. The National Council of State Housing Agencies, or NCSHA, in Washington, D.C., has compiled a state-by-state list of these programs. These loans may charge little or no interest and can be repaid with a tax credit refund, according to the NCSHA.
• Buyers who move out of the home within 36 months must repay the tax credit in full on that year's federal income tax return. Certain U.S. military personnel, U.S. Foreign Service employees and federal employees in the intelligence community who move out of the home due to qualified official extended duty outside of the U.S. are exempt from this rule.
• Certain U.S. military personnel, U.S. Foreign Service employees and federal employees in the intelligence community get an extra year to buy a home. They must enter into a contract by April 30, 2011, and close by June 30, 2011, to qualify.
• Three Web sites that offer some useful information about the tax credit are the IRS Web site at IRS.gov, the National Association of Realtors Web site at Realtor.org and the National Association of Home Builders Web site at FederalHousingTaxCredit.com.

 Don’t hesitate to contact me to get pre-qualified!!!

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