The Home Buyer Tax Credit Extension & Expansion
authorizes a tax credit of up to $8,000 for qualified first-time home
buyers or up to $6,500 for qualified current homeowners purchasing a
principal residence between November 6, 2009 and April 30, 2010.
The following questions and answers provide basic information about
the tax credit. If you have more specific questions, we strongly
encourage you to consult a qualified tax advisor or legal professional
about your unique situation.
1. Who is eligible to claim the tax credit?
First-time home buyers who purchase a home between January 1, 2009 and April 30, 2010.
Current home owners purchasing a home between November 6, 2009 and
April 30, 2010, who have used the home being sold or vacated as a
principal residence for five consecutive years within the last eight.
Contracts must be written and in-hand by April 30, 2010, however buyers have until June 30, 2010 to close on the property.
2. What is the definition of a first-time home buyer?
The law defines “first-time home buyer” as a buyer who has not owned a
principal residence during the three-year period prior to the purchase.
For married taxpayers, the law tests the homeownership history of both
the home buyer and his/her spouse.
For example, if you have not owned a home in the past three years
but your spouse has owned a principal residence, neither you nor your
spouse qualifies for the first-time home buyer tax credit. However,
unmarried joint purchasers may allocate the credit amount to any buyer
who qualifies as a first-time buyer, such as may occur if a parent
jointly purchases a home with a son or daughter. Ownership of a
vacation home or rental property not used as a principal residence does
not disqualify a buyer as a first-time home buyer.
3. How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up
to a maximum of $8,000 for first-time buyers and $6,500 for repeat
buyers.
4. Are there any income limits for claiming the tax credit?
The tax credit amount is reduced for buyers with a modified adjusted
gross income (MAGI) of more than $125,000 for single taxpayers and
$225,000 for married taxpayers filing a joint return. The tax credit
amount is reduced to zero for taxpayers with MAGI of more than $145,000
(single) or $245,000 (married) and is reduced proportionally for
taxpayers with MAGIs between these amounts.
5. What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for
the credit. This includes single-family detached homes, attached homes
like townhouses and condominiums, manufactured homes (also known as
mobile homes) and houseboats. The definition of principal residence is
identical to the one used to determine whether you may qualify for the
$250,000 / $500,000 capital gain tax exclusion for principal residences.
6. I am an eligible
first-time homebuyer. I entered into a contract to purchase on November
1, 2009. Do I have to go to closing before December 1? How does the
extension date affect me?
You do not have to close before December 1. Once the new
legislation was signed, it was as if the November 30 date had never
existed. Therefore, so long as the contract settles before April 30,
the purchaser will be eligible for the credit.
7. Existing homeowner credit: Must the new house cost more than the old house?
No. Thus, for example, individuals who move from a high cost
area to a lower cost area who meet all eligibility requirements will
qualify for the $6,500 credit.
8. I am an existing
homeowner. On October 25, 2009, I signed a contract to purchase a new
home. I have lived in my current home for more than 5 consecutive years
and am within the new income limits. I will go to settlement after
November 6. Will I qualify for the $6,500 tax credit?
Yes. The new income limitations go into effect November 6,
2009. The income limit and other eligibility rules will look to your
status as of the date of purchase, which is the settlement date. So if
you go to settlement after November 6, 2009, you should be eligible for
the credit (or a portion of the credit if you’re within the phase-out
range).
9. I am a first-time
homebuyer but was not within the prior income limits at the time I
entered into my contract to purchse on October 30, 2009. I will be
covered, however, by the new income limits. If I go to settlement after
November 6, will I be eligible for a credit?
Yes. The existing homeowner credit goes into effect for
purchases after November 6, 2009. There is no reference to the date of
contract for the new credit. The provision looks solely to the date of
purchase, which is generally the date of settlement.
10. I am an eligible
existing homeowner. I have a fair amount of equity in my home. I have
found a home with a non-negotiable price of $825,000. Will I be able to
receive any of the $6,500 tax credit?
No. The $800,000 cap on the cost of the purchased home is firm
at $800,000. Any amount above $800,000 makes the home ineligible for
any portion of the credit. The $800,000 is an absolute ceiling.
11. I owned my home
for 10 years, but sold it two years ago and have been renting since. If
I purchase a home, will I be eligible for the $6,500 tax credit if I
meet all the other eligibility tests?
Yes. Because you lived in the home for more than 5 consecutive
years of the previous 8, you will qualify for the $6,500 credit. For
example, say John and his wife bought a home in 2000 and lived there
until 2008 when they got divorced. Whether John has been renting or
bought in the interim, he WOULD INDEED be eligible for the credit
because he owned a home and occupied it as his principal residence for
5 consecutive years out of the last 8 years. The keyword is
“consecutive.” As long as he lived in that house for 5 years straight,
what he did since doesn’t impact eligibility.
12. Instead of buying
a new home from a home builder, I hired a contractor to construct a
home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a
principal residence that is constructed by the home owner is treated by
the tax code as having been “purchased” on the date the owner first
occupies the house. In this situation, the date of first occupancy must
be on or after November 6, 2009 and before July 1, 2010.
In contrast, for newly-constructed homes bought from a home builder,
eligibility for the tax credit is determined by the settlement date.
13. I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS),
who has not owned a principal residence in the previous three years and
who meets the income limits test may claim the tax credit for a
qualified home purchase. The IRS provides a definition of “nonresident
alien” in IRS Publication 519.
14. I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.
Source: National Association of REALTORS®
