In IR-2009-83, released September 17, 2009, the IRS reminded potential homebuyers they must complete their first-time home purchases before December 1, 2009 to qualify for the special first-time homebuyer credit. The American Recovery and Reinvestment Act extended the tax credit, which has provided a tax benefit to more than 1.4 million taxpayers so far.
Because the credit is only in effect for a limited time, those considering buying a home must act soon to qualify for the credit. Under the Recovery Act, an eligible home purchase must be completed before December 1, 2009. This means that the last day to close on a home that would qualify for this credit is November 30, 2009. It’s important to note that the credit cannot be claimed until after the purchase is completed.
For those considering a home purchase this fall, below are some details about the first-time homebuyer credit:
- The credit is ten (10) percent of the purchase price of the home, with a maximum available credit of $8,000 for either a single taxpayer or a married couple filing jointly. The limit is $4,000 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $80,000 or more (see below for limitations).
- The credit reduces the taxpayer’s tax bill dollar for dollar. Unlike most tax credits, the first-time homebuyer credit is fully refundable. This means that the credit will be paid to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
- Only the purchase of a primary residence located in the United States qualifies. Vacation homes and rental properties are not eligible.
- A home constructed by the taxpayer only qualifies for the credit if the taxpayer occupies it before December 1, 2009.
- The credit must be repaid if, within three years of purchase, the home ceases to be the taxpayer’s primary residence. For example, a taxpayer who claims the credit based on a qualifying purchase on September 1, 2009, must repay the full credit if he or she sells the home or converts it to business or rental use at any time before September 1, 2012.
Some taxpayers cannot take the credit even if they buy a main home before December 1, 2009. Below are some details regarding the limitations on the First-Time Homebuyer Credit:
- If the taxpayer’s income is too large they will not qualify for the credit. This applies to joint filers with modified adjusted gross income (MAGI) of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
- If a taxpayer buys a home from a close relative they cannot qualify for the credit. This includes a home purchased from the taxpayer’s spouse, parent, grandparent, child or grandchild.
- If a taxpayer owned another primary residence at any time during the three years prior to the date of purchase they will not qualify for the credit. For a married couple filing a joint return, this requirement applies to both spouses. For example, if the taxpayer bought a home on September 1, 2009, the taxpayer cannot take the credit for that home if he or she owned, or had an ownership interest in, another primary residence at any time from September 2, 2006, through September 1, 2009.
- Non-resident aliens do not qualify for the credit.
If you would like more details about this or any other aspect of the first-time home buyer credit, please call our offices and ask to speak to one of our shareholders or email us at info@taxwarriors.com.