First-time Homebuyers and Some long-time Residents
First-time homebuyer credit. The first-time homebuyer credit is one of the most popular tax incentives in recent years. However, it is not a permanent tax break. It is temporary. Its originally scheduled expiration date of November 30, 2009 prompted Congress to extend and expand it.A RMD is the amount that an individual must take from his or her qualified retirement account on an annual basis over the course of his or her life expectancy after retirement.
Originally, the credit was limited to $7,500 ($3,750 for a married taxpayer filing separately) and the credit acted like a loan. Taxpayers had to repay it in equal installments over 15 years. The repayment requirement appeared to discourage taxpayers from taking the credit and Congress removed it last year in most cases. Congress also raised the maximum credit to $8,000 ($4,000 for a married taxpayer filing separately).
The new law extends the credit for principal residences purchased on or before April 30, 2010. If a taxpayer enters into a binding contract before May 1, 2010, to close on the purchase of a principal residence before July 1, 2010, the new law treats the credit as not expiring until July 1, 2010. Members of the U.S. armed forces, foreign service and intelligence community may have additional time to claim the credit if they are serving on qualified official extended duty outside of the U.S.
The new also extends a special rule that could boost your expected tax refund. Eligible taxpayers can elect to treat a qualified purchase of a principal residence after December 31, 2008 as made on December 31 of the calendar year preceding the purchase. For example, if you purchase a qualified principal residence on March 2, 2010 and you are eligible for the credit, you can elect to treat the purchase as made on December 31, 2009 and claim the credit on your 2009 return. This treatment could result in a larger refund in 2010 depending on your personal tax situation. Otherwise, you could wait and claim the credit when you file your 2010 return in 2011. This election needs to be reviewed carefully. Our office can help you decide when to claim the credit to maximize your tax savings.
Until now, the credit was limited to first-time homebuyers. The full credit (the $8,000 credit) is still limited to first-time homebuyers. However, some long-time residents of the same principal residence may be eligible for a reduced credit of $6,500. Generally, you must have owned and used the same residence as your principal residence for any five consecutive year period during the eight year period ending on the date of the purchase of a subsequent principal residence. This provision is intended to help younger homeowners who are trading up and seniors who may be looking to downsize.
Another change in the new law is notable in enabling many more taxpayers to take advantage of the credit. Congress raised the income phase-outs for the credit. Previously, the credit phased out for single individuals with modified adjusted gross income (MAGI) between $75,000 and $95,000 and for married couples filing joint returns with MAGI between $150,000 and $175,000. Under the new law, phase out starts for single individuals with MAGI at $125,000 and for married couples filing joint returns with MAGI at $225,000.
The homebuyer credit can be very valuable. The credit is also very complex. In addition to the provisions we have described, there are special rules for repayment, new documentation requirements, a purchase price cap, and more. Please contact our office for more details about the credit.
11/10/2009
