2009 First Time Home Buyer Tax
Credit
In its efforts to stimulate the economy and revive the
housing market, Congress has enacted legislation providing a tax credit
of up to $8,000 for first-time home buyers.
But time is of the essence for buyers who want to take advantage of this
opportunity. Only homes purchased on or after January 1, 2009 and before
December 1, 2009 are eligible. There are many great opportunities to buy
a home on the north shore of Massachusetts, so call one of our REALTORS
at 978-740-8700 today to set up an appointment to discuss what is available now that
meets your needs. |
$8,000 Home Buyer
Tax Credit at a Glance
- The tax credit is for first-time home buyers only.
- The tax credit does not have to be repaid.
- The tax credit is equal to 10 percent of the home’s purchase
price up to a maximum of $8,000.
- The credit is available for homes purchased on or after January
1, 2009 and before December 1, 2009.
- Single taxpayers with incomes up to $75,000 and married couples
with incomes up to $150,000 qualify for the full tax credit, but
people with higher incomes may qualify for a partial credit.
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Frequently
Asked Questions About the Home Buyer Tax Credit
- Who is eligible to claim the tax
credit?
First-time
home buyers purchasing any kind of home—new
or resale—are eligible for the tax credit.
To qualify for the tax credit, a home
purchase must occur on or after January 1,
2009 and before December 1, 2009. For the
purposes of the tax credit, the purchase
date is the date when closing occurs and the
title to the property transfers to the home
owner.
- 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.
- 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.
- 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 $75,000 for single taxpayers and
$150,000 for married taxpayers filing a
joint return. The tax credit amount is
reduced to zero for taxpayers with MAGI of
more than $95,000 (single) or $170,000
(married) and is reduced proportionally for
taxpayers with MAGIs between these amounts.
- What is
"modified adjusted gross income"?
Modified adjusted gross income or
MAGI is defined by the IRS. To find it, a
taxpayer must first determine "adjusted
gross income" or AGI. AGI is total income
for a year minus certain deductions (known
as "adjustments" or "above-the-line
deductions"), but before itemized deductions
from Schedule A or personal exemptions are
subtracted. On Forms 1040 and 1040A, AGI is
the last number on page 1 and first number
on page 2 of the form. For Form 1040-EZ, AGI
appears on line 4 (as of 2007). Note that
AGI includes all forms of income including
wages, salaries, interest income, dividends
and capital gains.
To determine modified adjusted gross income
(MAGI), add to AGI certain amounts such as
foreign income, foreign-housing deductions,
student-loan deductions, IRA-contribution
deductions and deductions for
higher-education costs.
- If my modified
adjusted gross income (MAGI) is above the
limit, do I qualify for any tax credit?
Possibly. It depends on your income.
Partial credits of less than $8,000 are
available for some taxpayers whose MAGI
exceeds the phaseout limits.
- Can you give me
an example of how the partial tax credit is
determined?
Just as an example, assume that a
married couple has a modified adjusted gross
income of $160,000. The applicable phaseout
to qualify for the tax credit is $150,000,
and the couple is $10,000 over this amount.
Dividing $10,000 by $20,000 yields 0.5. When
you subtract 0.5 from 1.0, the result is
0.5. To determine the amount of the partial
first-time home buyer tax credit that is
available to this couple, multiply $8,000 by
0.5. The result is $4,000.
Here’s another example: assume that an
individual home buyer has a modified
adjusted gross income of $88,000. The
buyer’s income exceeds $75,000 by $13,000.
Dividing $13,000 by $20,000 yields 0.65.
When you subtract 0.65 from 1.0, the result
is 0.35. Multiplying $8,000 by 0.35 shows
that the buyer is eligible for a partial tax
credit of $2,800.
Please remember that these examples are
intended to provide a general idea of how
the tax credit might be applied in different
circumstances. You should always consult
your tax advisor for information relating to
your specific circumstances.
- How is this home
buyer tax credit different from the tax
credit that Congress enacted in July of
2008?
The most significant difference is
that this tax credit does not have to be
repaid. Because it had to be repaid, the
previous "credit" was essentially an
interest-free loan. This tax incentive is a
true tax credit. However, home buyers must
use the residence as a principal residence
for at least three years or face recapture
of the tax credit amount. Certain exceptions
apply.
- How do I claim
the tax credit? Do I need to complete a form
or application?
Participating in the tax credit
program is easy. You claim the tax credit on
your federal income tax return.
Specifically, home buyers should complete
IRS Form 5405 to determine their tax credit
amount, and then claim this amount on Line
69 of their 1040 income tax return. No other
applications or forms are required, and no
pre-approval is necessary. However, you will
want to be sure that you qualify for the
credit under the income limits and
first-time home buyer tests.
- 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.
- I read that the
tax credit is "refundable." What does that
mean?
The fact that the credit is
refundable means that the home buyer credit
can be claimed even if the taxpayer has
little or no federal income tax liability to
offset. Typically this involves the
government sending the taxpayer a check for
a portion or even all of the amount of the
refundable tax credit.
For example, if a qualified home buyer
expected, notwithstanding the tax credit,
federal income tax liability of $5,000 and
had tax withholding of $4,000 for the year,
then without the tax credit the taxpayer
would owe the IRS $1,000 on April 15th.
Suppose now that the taxpayer qualified for
the $8,000 home buyer tax credit. As a
result, the taxpayer would receive a check
for $7,000 ($8,000 minus the $1,000 owed).
- I purchased a
home in early 2009 and have already filed to
receive the $7,500 tax credit on my 2008 tax
returns. How can I claim the new $8,000 tax
credit instead?
Home buyers in this situation may
file an amended 2008 tax return with a 1040X
form. You should consult with a tax advisor
to ensure you file this return properly.
- 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 January 1,
2009 and before December 1, 2009.
In contrast, for newly-constructed homes
bought from a home builder, eligibility for
the tax credit is determined by the
settlement date.
- Can I claim the
tax credit if I finance the purchase of my
home under a mortgage revenue bond (MRB)
program?
Yes. The tax credit can be combined
with the MRB home buyer program. Note that
first-time home buyers who purchased a home
in 2008 may not claim the tax
credit if they are participating in an MRB
program.
- 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.
- Is a tax credit
the same as a tax deduction?
No. A tax credit is a
dollar-for-dollar reduction in what the
taxpayer owes. That means that a taxpayer
who owes $8,000 in income taxes and who
receives an $8,000 tax credit would owe
nothing to the IRS.
A tax deduction is subtracted from the
amount of income that is taxed. Using the
same example, assume the taxpayer is in the
15 percent tax bracket and owes $8,000 in
income taxes. If the taxpayer receives an
$8,000 deduction, the taxpayer’s tax
liability would be reduced by $1,200 (15
percent of $8,000), or lowered from $8,000
to $6,800.
- 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.
- Is there any
way for a home buyer to access the money
allocable to the credit sooner than waiting
to file their 2009 tax return?
Yes. Prospective home buyers who
believe they qualify for the tax credit are
permitted to reduce their income tax
withholding. Reducing tax withholding (up to
the amount of the credit) will enable the
buyer to accumulate cash by raising his/her
take home pay. This money can then be
applied to the downpayment.
Buyers should adjust their withholding
amount on their W-4 via their employer or
through their quarterly estimated tax
payment. IRS Publication 919 contains rules
and guidelines for income tax withholding.
Prospective home buyers should note that if
income tax withholding is reduced and the
tax credit qualified purchase does not
occur, then the individual would be liable
for repayment to the IRS of income tax and
possible interest charges and penalties.
Further, rule changes made as part of the
economic stimulus legislation allow home
buyers to claim the tax credit and
participate in a program financed by
tax-exempt bonds. Some state housing finance
agencies, such as the Missouri Housing
Development Commission, have introduced
programs that provide short-term credit
acceleration loans that may be used to fund
a downpayment. Prospective home buyers
should inquire with their state housing
finance agency to determine the availability
of such a program in their community.
- If I’m
qualified for the tax credit and buy a home
in 2009, can I apply the tax credit against
my 2008 tax return?
Yes. The law allows taxpayers to
choose ("elect") to treat qualified home
purchases in 2009 as if the purchase
occurred on December 31, 2008. This means
that the 2008 income limit (MAGI) applies
and the election accelerates when the credit
can be claimed (tax filing for 2008 returns
instead of for 2009 returns). A benefit of
this election is that a home buyer in 2009
will know their 2008 MAGI with certainty,
thereby helping the buyer know whether the
income limit will reduce their credit
amount.
Taxpayers buying a home who wish to claim it
on their 2008 tax return, but who have
already submitted their 2008 return to the
IRS, may file an amended 2008 return
claiming the tax credit. You should consult
with a tax professional to determine how to
arrange this.
- For a home
purchase in 2009, can I choose whether to
treat the purchase as occurring in 2008 or
2009, depending on in which year my credit
amount is the largest?
Yes. If the applicable income
phase out would reduce your home buyer tax
credit amount in 2009 and a larger credit
would be available using the 2008 MAGI
amounts, then you can choose the year that
yields the largest credit amount.
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Disclaimer: This page is provided for general
informational purposes only. You should consult you tax advisor about
how this law affects you and whether there has been any updates. This
information does not constitute tax, accounting or legal advice, and
should not be taken as such. Armstrong Field Inc REALTORS keep up to
date on the latest information and trends in mortgage and the tax
implications of home ownership, however we are only experts and
professionals in the matter of real estate. We encourage all our clients
to seek the advice of competent professions in other areas. |
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