The Worker, Homeownership, and Business Assistance Act of 2009 has extended the tax credit of up to $8,000 for qualified first time home buyers purchasing a principal residence on or after January 1, 2009 through April 30, 2010. Homes closing on or before June 30, 2010 may also qualify for this tax credit if the sales contract was signed by the April 30, 2010 deadline.
Combined with a $6500 tax credit for existing home owners purchase a new primary residence this bill was created and passed in the hopes to spur sales in the slumping real estate market. Some new homeowners may even qualify for special FHA financing, allowing them to apply their credit towards down payment and closing costs, giving some new home buyers the opportunity to get into a home with no money out of their pockets. .
Eligibility to Claim the $8,000 Tax Credit
First-time home buyers who purchase a new or resale home are eligible for the tax credit. A first-time home buyer is defined as a buyer who had not owned a principal residence during the three years prior to the purchase. Married tax payers must both meet this requirement in order to qualify.
Buyers must purchase the home on or after January 1, 2009, but before the close of business on April 30, 2010. For the purposes of the tax credit, the purchase date is established when the parties close the transaction and essentially will be the date on the HUD-1 Settlement Statement. (There are some exceptions for purchases made by Contract for Deed and Installment Sales, please refer to the IRS website for details). Homes closing on or before June 30, 2010 may also qualify for this tax credit if the sales contract was signed by the April 30, 2010 deadline.
Persons who are claimed as dependents by other taxpayers or who are under age 18 are not qualified for the tax credit program.
Determination of the Amount of the Tax Credit
The tax credit is equal to 10% of the home’s purchase price up to a maximum of $8,000.
Income Limits for Claiming the Tax Credit
For sales occurring on or after January 1, 2009 through November 6, 2009, single taxpayers are limited to $75,000 income and married taxpayers filing joint returns are limited to $150,000.
The income limits to qualify for this tax credit were raised when the extension was signed by the President on November 6th. For homes purchased between November 6, 2009 and close of business on April 30, 2009 the income limits for single taxpayers is $125,000 and married couples filing joint returns are limited to $225,000.
Unfortunately the higher income brackets are not retroactive and only apply to purchases made after November 6, 2009. Taxpayers who make more than the limited amounts may still qualify under the phase-out stage of the tax credit programs. Consult a tax professional or the IRS website for details.
Types of Homes that Qualify for the Tax Credit
Any single-family home, townhouse, condominium, manufactured home or houseboat that will be used as a principal residence will qualify for the credit. Home purchase price must be less than $800,000. Homes may not be purchased from other family members, including parents, grandparents, children, spouse, etc…
New homes that are under construction qualify for the tax credit and are considered purchased on the date the owner first occupies the house.
Claiming the Tax Credit and Required Documentation
The tax credit is claimed on a federal income tax return. For 2009, taxpayers will use IRS Form 5405 is used to determine the amount of the credit which is then entered on line 67 of the 1040 income tax form.
A copy of the HUD-1 Settlement Statement from the closing must be attached to Form 5405 as documented proof of the home purchase.
Tax Credit is Refundable
Typically the tax credit will offset any tax liability the taxpayer owes, but can be claimed even if the taxpayer has little or no federal income tax liability to offset. Normally this results in the Government sending the taxpayer a check for a portion or even the entire amount of the refundable tax credit.
Tax Credit May be Applied to FHA Down-payment and Closing Costs
Buyers finance the purchase of their new home through a FHA-insured mortgage may, under certain guidelines, apply their anticipated tax credit toward their home purchase at closing instead of waiting for to file their 2009 or 2010 income tax returns.
The information in this article is intended to provide prospective home buyers basic information about the available tax credit. The author strongly advises readers to consult a qualified tax advisor about their unique situation.
 |
