Homebuyer Credit

Homebuyer Credit Extended and Liberalized

As originally enacted, a refundable tax credit was available for qualifying first-time home purchases after April 8, 2008, and before December 1, 2009 (Click here for information).  For qualifying purchases, the maximum first time homebuyer tax credit was the lesser of $8,000 ($4,000 for a married individual filing separately) or 10% of the principal residence's purchase price.  The credit was subject to phase-out provisions for individual taxpayers with AGI between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase.

• A first-time homebuyer for this purpose was an individual (and spouse, if married) who had no prior ownership interest in a principal residence in the U.S. during the 3-year period before the purchase of the home.
• Special recapture rules apply for homes purchased in 2008 which essentially calls for recovery of the credit over fifteen years without interest beginning in the second tax year after the tax year in which the home is purchased.  For homes purchased after December 31, 2008, and before December 1, 2009, the credit would be recaptured if the taxpayer disposes of the home within 36 months from the date of purchase or ceases to be used a as principal residence.

The ’09 Act extends the credit and makes the rules easier by making the credit available to higher-income taxpayers and to existing homeowners who are qualifying “long-time residents” who purchase another principal residence.

• Under the ’09 Act, the credit is extended to taxpayer purchases before May 1, 2010 and to the purchase of a principal residence by a taxpayer who enters into a written binding contract to purchase before May 1, 2010 and who closes on the purchase before July 1, 2010.
• For purchases after November 6, 2009, the credit phases out for individual taxpayers with AGI between $125,000 and $145,000 ($225,000 and $245,000 for joint filers) for the year of purchase.
• For purchases after November 6, 2009, any individual (and spouse) who has maintained the same principal residence for any 5-consecutive year period during the 8-year period ending on the date of the purchase of a subsequent principal residence is treated as a first-time homebuyer of that subsequent principal residence thus eligible for the credit.  The maximum allowable credit in this case would be $6,500 ($3,250 for a married individual filing separately).
• For purchases after November 6, 2009, the credit cannot be claimed for buying a residence if the purchase price exceeds $800,000.
• A taxpayer may continue to elect to treat a qualifying home purchase made in 2009 or 2010 as made on December 31 of the calendar year preceding the purchase for purposes of claiming the credit on the prior year's tax return.

Anti-Abuse Provisions Enacted As Part of the Homebuyer Credit

The ’09 Act makes the following changes to help prevent taxpayer abuse.

• Taxpayers must have attained 18 years of age as of the date of purchase.  Married taxpayers are treated as meeting the age requirement if the taxpayer or spouse meets the age requirement.
• For purchases after November 6, 2009, the credit cannot be claimed by a taxpayer who is claimed as a dependent by another taxpayer for the tax year of purchase. 
• For returns for tax years ending after November 6, 2009, the credit is not allowed unless the taxpayer attaches to the tax return a properly executed copy of the settlement statement used to complete the purchase.
• For purchases after November 6, 2009, the definition of a qualifying purchase excludes property acquired from a related party.
• The ’09 Act expands the definition of mathematical or clerical error for purposes of administration of the credit so that the IRS may assess additional tax (without issuance of a notice of deficiency) where the credit was inappropriately claimed or where an increase in tax was inappropriately omitted. 

There is more to the law dealing with individuals serving in the U.S. Armed Forces and other special situations so if this applied to you, be sure to check it out with us.

For more information, please contact Scott Singer, CPA at 630-420-1360 or ssinger@dhjj.com.

This information does not constitute tax advice.  You should consult with an advisor regarding your particular situation.  In no event will DiGiovine Hnilo Jordan + Johnson, Ltd. be held liable for any reliance on the information in this document.