By JC Leahy Maximum Legal Refund (TM)
Income Tax Preparation and Consulting
Silver Spring, Maryland
For help preparing your income tax returns, email: email@example.com or phone (301)537-5365 .
The First Time Homebuyer Tax Credit has come a long way since it was first created, and it is bigger and better for 2009 and 2010. Also, it has a new cousin: the Repeat Home Buyer's Tax Credit. The First Time Homebuyer Credit was created during the latter days of the Bush Administration by the Housing Recovery Act of 2008. Originally, it was not actually a tax credit, was not limited to first-time home buyers, and was not limited to buying a house. The maximum "credit" was $7,500. At that time, you would have been obligated to REPAY the $7,500 to the IRS over a 15-year period starting in tax-year 2010. So the original Home Buyer Tax Credit amounted to a 17-year interest-free loan for buying a principal residence, provided that you hadn't owned a principal residence during the prior 3 years. Nowadays, the maximum credit is $8,000, and you don't have to pay it back -- except as mentioned below.
To qualify for the credit you must have not owned a principal residence within the 3-year period ending on the date of purchase of your new principal residence. If you built your home, your date of purchase is counted as the date you moved in. If you owned a vacation home, or rental property, or a shopping center, or any other real estate that was NOT your principal residence, you still qualify.
The purchase date of your new home may be any time in 2009 and until June 30, 2010, provided that there is a binding sales contract in place no later than April 30, 2010, AND that you then close the purchase by June 30. The latest expiration date for this credit was November 30, 2009, but that was extended, with some changes. You must have purchased the home in an "arms length" transaction. This means that if you bought the home from relatives, such as your parents, it won't qualify for the credit.
If you make too much money, you can't get this credit. How much is too much? This depends on when you bought the home, First, the pre-November 6, 2009 rules: For single taxpayers, the credit starts to get reduced at a Modified Adjusted Gross Income of $75,000, and disappears entirely at $95,000. For married couples filing joiong returns, the credit starts to get reduced at MAGI of $150,000, and disappears completely at $170,000. This is called "MAGI phaseout." For post-November 6 buyers, the MAGI phaseout ranges are $125,000 to $145,000 for singles, and $225,000 to $245,000 for married filing joint. So you can make more money and still claim the credit if you purchased your home after November 6.
If two single people buy a home together, they must split the credit between them, and each one is subjet to MAGI phaseout separately.
You don't have to buy a house to qualify for this credit. A trailer will do. Or a mobile camper, or a yacht, for that matter. It must have full living facilities and you must use it as your principal residence.
There is one circumstance when you WILL have to pay back the $8,000 credit. If you If you sell the home or stop using it as a preincipal residence within 36 months of the purchase date, or convert it to a rental or business property, you'll be asked to repay the credit. This is also true if your home is destroyed or condemned and you do not replace it with a new principal residence withing 2 years.
One other little twist: When you eventually DO sell the home, the $8,000 credit reduces its tax basis. This increases any capital gain by $8,000.
Bottom Line: This is a great tax credit. Take it if you can -- just be aware of the details outlined above!
Questions? The author may be contacted at: firstname.lastname@example.org
PS: Upcoming Article: The Repeat Homebuyers Tax Credit -- Don't Miss It !!!