Don’t miss ‘new, improved’ first-time homebuyer credit
The first-time homebuyer credit created by last year’s housing law didn’t do much to stimulate home sales throughout the country. But the new economic stimulus law sweetens the pot. Most homeowners no longer have to repay the credit!
Strategy: Encourage family members to pounce on this juicy tax break. Or, if you haven’t owned a home during the past three years (or never owned one), you might join the party yourself.
The revamped first-time homebuyer credit applies to home purchases made after Dec. 31, 2008, and before Dec. 1, 2009. But you don’t have to wait until you file your ’09 return to reap the tax rewards.
Here’s the whole story: Under the Housing and Tax Assistance Act of 2008, a first-time homebuyer could claim a refundable tax credit equal to the lesser of $7,500 or 10% of the price of a home purchased after April 8, 2008, and before July 1, 2009. The law defined a “first-time homebuyer” as someone who has not owned a principal residence for the three years prior to the purchase. If you made a qualified purchase in 2009, you could elect to use the credit to offset your 2008 tax liability.
But the previous homebuyer credit came with a steep price attached. Unlike other tax credits, the IRS requires homeowners to pay back the credit in equal installments over 15 years. So the “credit” really amounts to nothing more than an interest-free loan from Uncle Sam. Other special rules governing divorces and involuntary conversions may apply.
To make matters worse, the credit phases out if your AGI for the year of the purchase exceeds $75,000 for single filers or $150,000 for joint filers. The phaseout ends at $95,000 of AGI for single filers and $170,000 for joint filers.
Now the new law spices things up. For starters, it bumps the maximum credit up to $8,000 from $7,500 (although not as high as the $15,000 credit contained in the Senate version of the bill). Second, you no longer have to repay the credit as long as you continueto live in the home for at least three years following the purchase. (However, you must repay the credit if you stop using the home as your principal residence during this three-year period.) Therefore, the refundable credit can reduce your tax bill on a dollar-for-dollar basis.
Example: Your annual tax liability is $10,000. During the year you pay $11,000 in withholding tax. If you’re entitled to the maximum credit, you receive a $9,000 refund ($8,000 credit + $1,000 tax overpayment).
However, keep in mind that the phaseout rules still apply. The phaseout is complete when a single filer has an AGI over $95,000 and joint filers exceed $170,000 of AGI.
Claim the credit on Form 5405, First-Time Homebuyer Credit. This form has already been revised to reflect the new stimulus law. Find it at www.irs.gov/pub/irs-pdf/f5405.pdf.
New tax wrinkle: If you purchased a home early this year, you may have elected to claim the credit on your 2008 return under the old rules. But home purchases after Dec. 31, 2008, qualify for the improved credit even if you claim the credit on your 2008 return (see Form 5405).
Strategy: Encourage family members to pounce on this juicy tax break. Or, if you haven’t owned a home during the past three years (or never owned one), you might join the party yourself.
The revamped first-time homebuyer credit applies to home purchases made after Dec. 31, 2008, and before Dec. 1, 2009. But you don’t have to wait until you file your ’09 return to reap the tax rewards.
Here’s the whole story: Under the Housing and Tax Assistance Act of 2008, a first-time homebuyer could claim a refundable tax credit equal to the lesser of $7,500 or 10% of the price of a home purchased after April 8, 2008, and before July 1, 2009. The law defined a “first-time homebuyer” as someone who has not owned a principal residence for the three years prior to the purchase. If you made a qualified purchase in 2009, you could elect to use the credit to offset your 2008 tax liability.
But the previous homebuyer credit came with a steep price attached. Unlike other tax credits, the IRS requires homeowners to pay back the credit in equal installments over 15 years. So the “credit” really amounts to nothing more than an interest-free loan from Uncle Sam. Other special rules governing divorces and involuntary conversions may apply.
To make matters worse, the credit phases out if your AGI for the year of the purchase exceeds $75,000 for single filers or $150,000 for joint filers. The phaseout ends at $95,000 of AGI for single filers and $170,000 for joint filers.
Now the new law spices things up. For starters, it bumps the maximum credit up to $8,000 from $7,500 (although not as high as the $15,000 credit contained in the Senate version of the bill). Second, you no longer have to repay the credit as long as you continueto live in the home for at least three years following the purchase. (However, you must repay the credit if you stop using the home as your principal residence during this three-year period.) Therefore, the refundable credit can reduce your tax bill on a dollar-for-dollar basis.
Example: Your annual tax liability is $10,000. During the year you pay $11,000 in withholding tax. If you’re entitled to the maximum credit, you receive a $9,000 refund ($8,000 credit + $1,000 tax overpayment).
However, keep in mind that the phaseout rules still apply. The phaseout is complete when a single filer has an AGI over $95,000 and joint filers exceed $170,000 of AGI.
Claim the credit on Form 5405, First-Time Homebuyer Credit. This form has already been revised to reflect the new stimulus law. Find it at www.irs.gov/pub/irs-pdf/f5405.pdf.
New tax wrinkle: If you purchased a home early this year, you may have elected to claim the credit on your 2008 return under the old rules. But home purchases after Dec. 31, 2008, qualify for the improved credit even if you claim the credit on your 2008 return (see Form 5405).
Stock Talk
Add New Comments
You must be logged in to post to Stock Talk OR create an account