The complexity of new home buyer tax credits leaves potential buyers with many questions. Here are answers to some of the most confusing:
How does a current home owner qualify for the $6,500 credit?
Buyers must have lived in their homes for at least five out of the last eight years. The home they buy must become their primary residence, but buyers don’t have to sell their previous home. They can use the previous home as a rental or a second home and still claim the credit.
Does the new home have to be more expensive than the one the buyer currently owns?
No. It is fine to use it to downsize. If the property sells for more than $800,000, the buyers don’t qualify.
Can buyers who are building a new home claim the credit?
Yes, although the contract must be in place by April 30 and the buyer must move in by July 1.
Can buyers claim the credit if they purchase a home from a relative?
No. The legislation prohibits taxpayers from claiming the credit if the sale is between “related parties,” including parent, grandparent, child, or grandchild.
Source: USA Today, Sandra Block (11/24/2009)
Friday, November 27, 2009
Wednesday, November 11, 2009
Home Buyer Tax Credit: 10 Things to Know
SmartMoney
T he Tax Guy by Bill Bischoff
On Nov. 6, the president signed 1 the new Worker, Homeownership, and Business Assistance Act of 2009 into law. The
centerpiece of this legislation is the extension and liberalization of what is now inaccurately called the first-time home buyer credit.
Here are the 10 most important things to know about the revamped credit.
1. New purchase deadline extends into 2010
The home buyer credit was previously scheduled to expire on Nov. 30, 2009. The new law extends the deal to cover purchases of
U.S. principal residences that close by April 30, 2010. However, if a home is under contract on that date, the deadline for closing is
extended to June 30, 2010.
2. Existing homeowners can now qualify
The new law allows a reduced credit for existing homeowners who buy a replacement U.S. principal residence after Nov. 6, 2009.
The credit equals the lesser of: (1) $6,500, or (2) 10% of the price of the replacement home, or (3) $3,250 for a buyer who uses
married filing separate status. The new existing-homeowner credit is only available for purchases that close after Nov. 6, 2009. To
qualify, the buyer must have owned and used the same home as a principal residence for at least five consecutive years during the
eight-year period ending on the purchase date for the replacement principal residence. If you’re married, your spouse must pass
this test too (whether or not you file jointly).
3. Larger credits still allowed for first-time buyers
Before the new law, the home buyer credit was only available to so-called first-time buyers, which means someone who had not
owned a U.S. principal residence during the three-year period ending on the purchase date for a home that will serve as the
buyer’s new principal residence. If you’re married, both you and your spouse must pass the three-year test (whether or not you file
jointly). These first-time home buyer rules still apply for purposes of claiming a larger credit of up to $8,000. Specifically, the credit
for a first-time buyer still equals the lesser of: (1) $8,000, or (2) 10% of the home purchase price, or (3) $4,000 if you use married
filing separate status.
4. Higher-income folks can now qualify
The home buyer credit is phased out (reduced or completely eliminated) as income goes up. However, the new law significantly
raises the phase-out ranges so that many more higher-income buyers will now qualify.
* For purchases after Nov. 6, 2009, the phase-out range for unmarried individuals and married folks who file separately is between
modified adjusted gross income (MAGI) of $125,000 and $145,000 (way up from the old-law range of $75,000-$95,000).
* The phase-out range for married joint filers is now between MAGI of $225,000 and $245,000 (way up from the previous range of
$150,000-$170,000).
5. New $800,000 purchase price limit
For purchases after Nov. 6, 2009, the credit can only be claimed for a principal residence that costs $800,000 or less. So if your
new home costs $800,001, the credit is completely off limits (but I doubt too many people will feel sorry for you).
6. No more credits for kids or dependents
For purchases after Nov. 6, 2009, the home buyer must be at least 18 years old on the purchase date to qualify for the credit. Also,
no credit is allowed for a buyer who can be claimed as a dependent on someone else’s Form 1040 for the year of the purchase.
These new rules are intended to shut down the practice of claiming the credit for youngish buyers who really don’t even have
incomes of their own (like college students who use money from their parents to buy a pad near campus).
7. New anti-fraud rules
A recent government report said the IRS has already identified over 100,000 returns with potentially fraudulent home buyer credits.
This is hardly surprising when the government is willing to give away up to $8,000 in free money to anyone who files a return, even
when that person reports no income. Believe it or not, absolutely no documentation was required to claim the credit, until now. For
credits claimed on 2009 and 2010 returns, buyers must attach a properly executed real estate settlement sheet to the return. Also,
Published November 11, 2009
credits claimed on 2009 and 2010 returns, buyers must attach a properly executed real estate settlement sheet to the return. Also,
the IRS can now simply disallow credits in fishy circumstances (like when it appears the $8,000 credit is being claimed by someone
who already owns a home).
8. Credits can still be claimed on prior-year returns
Under the revamped rules, you can still claim the credit for a 2009 purchase on your 2008 return (although you would now
generally have to file an amended return to do so). You can also claim the credit for a 2010 purchase on your 2009 Form 1040.
This allows you to cash in on the credit sooner rather than later, and it may also allow you to claim a larger credit if your income in
the year of purchase is higher than in the preceding year.
9. Credits must still be repaid in some cases
Under old-law rules for homes purchased between April 9, 2008 and Dec. 31, 2008, buyers are generally required to repay the
credit over 15 years. However, this repayment rule is generally eliminated for purchases after 2008. That said, you might still have
to repay the credit if you sell your home within three years of the purchase date or stop using it as your principal residence during
that period.
10. Special rules for military service members
For military service members on extended duty outside the U.S., the new law lengthens the deadline for closing on home
purchases for an extra year, to April 30, 2011 (or June 30, 2011 for homes under contract on April 30, 2011). The new law also
waives the credit repayment rules for service members who are forced to move due to receiving new orders. The same special
rules apply to members of the foreign service and intelligence communities.
smSmallBiz ™ SMARTMONEY ® Layout and look and feel of SmartMoney.com and smSmallBiz.com are trademarks of SmartMoney, a joint venture between Dow Jones & Company, Inc. and
Hearst SM Partnership. © 1995 - 2009 SmartMoney. All Rights Reserved. By accessing and using this page, you agree to ouPr rivacy Policy and Terms of Use. All quotes delayed by 15 minutes.
T he Tax Guy by Bill Bischoff
On Nov. 6, the president signed 1 the new Worker, Homeownership, and Business Assistance Act of 2009 into law. The
centerpiece of this legislation is the extension and liberalization of what is now inaccurately called the first-time home buyer credit.
Here are the 10 most important things to know about the revamped credit.
1. New purchase deadline extends into 2010
The home buyer credit was previously scheduled to expire on Nov. 30, 2009. The new law extends the deal to cover purchases of
U.S. principal residences that close by April 30, 2010. However, if a home is under contract on that date, the deadline for closing is
extended to June 30, 2010.
2. Existing homeowners can now qualify
The new law allows a reduced credit for existing homeowners who buy a replacement U.S. principal residence after Nov. 6, 2009.
The credit equals the lesser of: (1) $6,500, or (2) 10% of the price of the replacement home, or (3) $3,250 for a buyer who uses
married filing separate status. The new existing-homeowner credit is only available for purchases that close after Nov. 6, 2009. To
qualify, the buyer must have owned and used the same home as a principal residence for at least five consecutive years during the
eight-year period ending on the purchase date for the replacement principal residence. If you’re married, your spouse must pass
this test too (whether or not you file jointly).
3. Larger credits still allowed for first-time buyers
Before the new law, the home buyer credit was only available to so-called first-time buyers, which means someone who had not
owned a U.S. principal residence during the three-year period ending on the purchase date for a home that will serve as the
buyer’s new principal residence. If you’re married, both you and your spouse must pass the three-year test (whether or not you file
jointly). These first-time home buyer rules still apply for purposes of claiming a larger credit of up to $8,000. Specifically, the credit
for a first-time buyer still equals the lesser of: (1) $8,000, or (2) 10% of the home purchase price, or (3) $4,000 if you use married
filing separate status.
4. Higher-income folks can now qualify
The home buyer credit is phased out (reduced or completely eliminated) as income goes up. However, the new law significantly
raises the phase-out ranges so that many more higher-income buyers will now qualify.
* For purchases after Nov. 6, 2009, the phase-out range for unmarried individuals and married folks who file separately is between
modified adjusted gross income (MAGI) of $125,000 and $145,000 (way up from the old-law range of $75,000-$95,000).
* The phase-out range for married joint filers is now between MAGI of $225,000 and $245,000 (way up from the previous range of
$150,000-$170,000).
5. New $800,000 purchase price limit
For purchases after Nov. 6, 2009, the credit can only be claimed for a principal residence that costs $800,000 or less. So if your
new home costs $800,001, the credit is completely off limits (but I doubt too many people will feel sorry for you).
6. No more credits for kids or dependents
For purchases after Nov. 6, 2009, the home buyer must be at least 18 years old on the purchase date to qualify for the credit. Also,
no credit is allowed for a buyer who can be claimed as a dependent on someone else’s Form 1040 for the year of the purchase.
These new rules are intended to shut down the practice of claiming the credit for youngish buyers who really don’t even have
incomes of their own (like college students who use money from their parents to buy a pad near campus).
7. New anti-fraud rules
A recent government report said the IRS has already identified over 100,000 returns with potentially fraudulent home buyer credits.
This is hardly surprising when the government is willing to give away up to $8,000 in free money to anyone who files a return, even
when that person reports no income. Believe it or not, absolutely no documentation was required to claim the credit, until now. For
credits claimed on 2009 and 2010 returns, buyers must attach a properly executed real estate settlement sheet to the return. Also,
Published November 11, 2009
credits claimed on 2009 and 2010 returns, buyers must attach a properly executed real estate settlement sheet to the return. Also,
the IRS can now simply disallow credits in fishy circumstances (like when it appears the $8,000 credit is being claimed by someone
who already owns a home).
8. Credits can still be claimed on prior-year returns
Under the revamped rules, you can still claim the credit for a 2009 purchase on your 2008 return (although you would now
generally have to file an amended return to do so). You can also claim the credit for a 2010 purchase on your 2009 Form 1040.
This allows you to cash in on the credit sooner rather than later, and it may also allow you to claim a larger credit if your income in
the year of purchase is higher than in the preceding year.
9. Credits must still be repaid in some cases
Under old-law rules for homes purchased between April 9, 2008 and Dec. 31, 2008, buyers are generally required to repay the
credit over 15 years. However, this repayment rule is generally eliminated for purchases after 2008. That said, you might still have
to repay the credit if you sell your home within three years of the purchase date or stop using it as your principal residence during
that period.
10. Special rules for military service members
For military service members on extended duty outside the U.S., the new law lengthens the deadline for closing on home
purchases for an extra year, to April 30, 2011 (or June 30, 2011 for homes under contract on April 30, 2011). The new law also
waives the credit repayment rules for service members who are forced to move due to receiving new orders. The same special
rules apply to members of the foreign service and intelligence communities.
smSmallBiz ™ SMARTMONEY ® Layout and look and feel of SmartMoney.com and smSmallBiz.com are trademarks of SmartMoney, a joint venture between Dow Jones & Company, Inc. and
Hearst SM Partnership. © 1995 - 2009 SmartMoney. All Rights Reserved. By accessing and using this page, you agree to ouPr rivacy Policy and Terms of Use. All quotes delayed by 15 minutes.
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