11/13/09 I have gotten several inquiries in the last few days about the main provisions of the new homebuyers’ credit included in the Worker, Homeownership and Business Assistance Act of 2009. I decided to post the information here for all to see. I do have an inquiry in to the IRS Stakeholder Liaison for a clarification on an issue for married couples, and I will post more as it becomes available. But for now, here’s the scoop:
First-time homebuyers:
A credit of up to 10% of the contract purchase price, not to exceed $8,000, is available to buyers who have not owned a home in the last 3 years prior to closing date or April 30, 2010, whichever is earlier.
The new home must be under binding contract or purchased no later than midnight April 30, 2010 to receive the full credit. Those under contract must close by June 30, 2010. For those who are building a home, the home must be legally occupied by the owner to be considered purchased (this is by statute). For those who are buying and renovating a home prior to occupying the home, it is considered purchased on the closing date, not the occupancy date.
If two or more unmarried individuals buy a principal residence together, they can allocate the credit among the individual owners using any reasonable method. If some qualify and others do not, those that qualify may take their reasonable portion of the credit. The total amount allocated cannot exceed the smaller of $8,000 or 10% of the contract purchase price.
Non-first time home buyers
A credit of up to 10% of the contract purchase price, not to exceed $6,500, is available to buyers who have owned a primary residence prior to closing date and “shall apply to residences purchased after the date of the enactment of this Act”, which includes buyers who close between November 7th, 2009 and April 30, 2010.
Non-first-time homebuyers are defined as those who have lived in their previous residence for at least five consecutive years during the eight-year period that ended on the date the replacement home is purchased or under contract on or before April 30, 2010.
Unmarried individuals shall still allocate the credit in the same manner as first-time homebuyers, but using the $6,500 maximum.
If the taxpayer’s old home was converted to a rental for all of last 3 years, the new home purchase may possibly qualify for the first-time credit. If the home was converted to a rental for less than 3 years prior to the purchase of the new home, the non-first-time credit would probably apply. The taxpayer can still own the prior home and continue to operate it as a rental property without jeopardizing the credit; however be aware that there are reductions in capital gain exclusions for property operated as a rental after 2008. See page 15 of IRS Pub. 523 for more information or contact your CPA, tax attorney, or other tax professional for guidance, should this situation occur.
All homebuyers:
The credit amounts are halved for those taxpayers who are married filing separately. They are not reduced for single or head of household filers.
The credit phases out for individuals whose modified adjusted gross income (MAGI) exceeds $125,000, and married couples filing jointly whose combined MAGI exceeds $225,000. The higher income limits are only for homes closed on Nov. 7, 2009 and after.
The new home must be used as a principal residence for the owners who claim the credit.
Those who sell their new home or stop using it as their main residence within three years of purchase would have to repay the credit. I would expect that if, for example, a married couple who claimed the credit in 2009 or 2010 should legally separate or divorce within 3 years of closing on the home and claiming the credit, and one spouse moves out of the home, that spouse who moved would have to repay their portion of the credit. I would also expect that this has the potential to be an interesting new item in divorce settlements. I would also expect that military service or other temporary absence would not fall under this definition of stopping use as a main home, but contact your CPA, tax attorney, or other tax professional for guidance, should this situation occur.
Active duty military servicemembers have an extension of time to purchase the new home.
You must be over 18 years old to claim the credit.
The credit is refundable.
For more information on the homeowner tax credits from 2007 on, see http://www.irs.gov/newsroom/article/0,,id=204671,00.html
