Situation: Under the new tax act, a hefty cash refund is available to so-called “first-time” home buyers, and the irony is that the law defines such a buyer as someone who has not owned a present interest in a principal residence within three years of the purchase date.
The American Recovery and Reinvestment Tax Act of 2009, which was passed Feb. 17, offers a first-time home buyer credit of up to $8,000. This enticing incentive for purchasing a main home is available for both single taxpayers and married taxpayers filing jointly. Married taxpayers filing separately qualify for up to $4,000 each.
Solution: The first-time home-buyer tax credit is up to $8,000 for a “main home” purchased from Jan. 1, 2009, through Nov. 30, 2009. A “main home” is defined as the one lived in most of the time.
The credit is based on 10% of the purchase price of the home, so a home costing as little as $80,000 would qualify for the full $8,000 refund.
The transaction must be completed before Dec. 1, 2009, to qualify. Generally, a purchase takes place when title closes. But that may vary, depending on where you live. For example, in California that is typically the date of the escrow closing statement. If you construct your main home, it is treated as purchased on the date you first occupy the home.
The definition of a qualifying “main home” can include a single-family dwelling as well as a house trailer, houseboat, condominium, cooperative apartment or other type of residence.
If you purchase your main home from a related party, the purchase will not qualify for the credit. A potential related party is defined in
Internal Revenue Service Form 5405, “First-Time Homebuyer Credit.” A home acquired through a gift or inheritance also does not qualify. Homes outside the United States and those purchased by non-resident aliens do not qualify for the credit.
There is no required repayment of the $8,000 for a home acquired in 2009 after you live in the home as your main residence for at least 36 months. No repayment is required at death.
There are special rules for divorces and for involuntary conversions, which include destruction and condemnation, but are further spelled out in Form 5405. If the home is sold within 36 months to an unrelated party, the repayment is limited to the gain on the sale. And a sale to a related party does not qualify.
The credit begins to phase out for single taxpayers with modified adjusted gross income in excess of $75,000 and in excess of $150,000 for joint filers. The phase-out range for singles begins at $75,000 and the credit completely phases out at $95,000. For married taxpayers who file jointly, the end point of the credit phase-out is $170,000.
An eligible taxpayer can elect to take this refundable credit for a home purchased in 2009 on their 2008 tax return, using
Internal Revenue Service Form 5405 to claim the credit.
IRS Commissioner Douglas Shulman reports, “For first-time home buyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax [credit. This] important change gives qualifying home buyers cash they do not have to pay back.”
The IRS has posted the updated 2008 Form 5405 “First -Time Homebuyer Credit” and the instructions at www.irs.gov.
It has alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008, and on or before Dec. 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10% of the purchase price, up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.
The IRS has also recently issued Notice 2009-12 to explain how the first-time home-buyer credit should be allocated between unmarried taxpayers who buy a principal residence together, and includes seven examples. Generally, this guidance limits the credit to $8,000 on any one home purchased by multiple buyers.
The Senate proposal to raise the credit to $15,000 and make it applicable to all home purchasers regardless of income level was not includes in the final bill.
