Submit Feedback
Member Login
Blogs Homepage
Featured Entries
Recent Entries
Recent Comments
Tags
My Starred Entries
Create A BlogStimilus Credit expained by a CPA |
Mar. 22, 2009
A number of my clients have asked for an indepth view of the tax credit so here it is! This explaination came from a CPA that I work with.
Home Buyer’s Credit Expanded And Enhanced. For 2008, first-time home buyers who satisfied certain income thresholds were eligible for a refundable credit of up to $7,500 for purchases of a principal residence after April 8, 2008 and before 2009. However, this credit had to be paid back to the government in equal installments over 15 years, or earlier if the house was sold or if the purchaser failed to use the home as a principal residence. These rules (including the 15-year payback requirement) still apply to qualifying home purchases after April 8, 2008 and before 2009. However, for qualifying home purchases after 2008 and before December 1, 2009, the new law expands and enhances the credit by: 1) increasing the maximum credit from $7,500 to $8,000 (not to exceed 10% of the home’s purchase price), 2) eliminating the 15-year payback requirement, 3) requiring recapture of the credit upon the sale of the residence or failure to use the residence as a principal residence only where the sale or change of use occurs within 36 months of the date of purchase, 4) extending the deadline for qualifying purchases from June 30, 2009 to November 30, 2009, and 5) extending the credit for qualifying homes bought with proceeds from a tax-exempt mortgage revenue bond.
● Who Qualifies For The New Credit? If your purchase (i.e., title closing) occurred after April 8, 2008 and before 2009, the2008 rules apply (i.e., 15-year payback requirement, cap of $7,500). If your purchase occurs after 2008 and no later than November 30, 2009, the new2009 rules apply ( i.e., no payback rule if you satisfy the 36-month rule, and cap of $8,000). Tax Tip. If you constructed your qualifying home, yourpurchase date is the date you move in, even though the construction began earlier.
● How Do The Credit Limits Apply? Under the2009 Rules, the amount of the credit is the lesser of: 1) $8,000 ($4,000 if you are married filing separately), or 2) 10% of the home's purchase price. The credit is phased out as your adjusted gross income (AGI) increases from $75,000 to $95,000 if you are single, or from $150,000 to $170,000 if you are married filing jointly. Tax Tip. Since the credit is refundable, you will actually get a refund to the extent the credit exceeds your tax liability.
● Who Is A Qualified First-Time Home Buyer? You are a "first-time home buyer" if neither you nor your spouse has owned an interest in a principal residence in the U.S. during the 36-month period ending on the date of the purchase of the current residence. Tax Tip. Even if you or your spouse previously owned a home, you can still qualify for the credit, if that ownership ended at least three years before the purchase of the current residence. Planning Alert! You generally will not qualify for the credit if: 1) you purchase your home from a related party (e.g., certain family members), or 2) the home is not located in the U.S. Tax Tip. Yourprincipal residence could include a condominium, houseboat, or mobile home.
● How Do The New 2009 Recapture Rules Work? If you purchased a home subject to the2008 Rules (i.e., from April 9, 2008 through December 31, 2008), you generally must pay back the credit over 15 years. Under the2009 Rules (i.e., purchases from January 1, 2009 through November 30, 2009), there is no recapture of the creditunless within 36 months of the purchase 1) you sell the house, or 2) you (and, if married, your spouse) cease using the house as your principal residence. Tax Tip. Even if the home is sold within 36 months of the date of purchase, the credit is only recaptured to the extent of the gain on the sale (after reducing the basis of the residence by any credit allowed). For example, let’s assume that you purchased a home for $150,000 in 2009 which qualified you for the $8,000 credit. Even if you sold the home within 36 months, you would recapture the $8,000 credit only to the extent you sold the home for more than $142,000 ($150,000 minus $8,000). Also, the homeowner’s death will not trigger any recapture. Furthermore, transfers as part of a divorce do not trigger the recapture, however, the spouse who gets the residence will be responsible for the recapture tax on the house.
● How Are Unmarried Co-Owners Treated? Two or more unmarried individuals may purchase a residence and qualify for the credit. However, the total amount of the credit allowed to the individuals in the aggregate may not exceed the overall caps (i.e., $7,500 for 2008, $8,000 for 2009). In addition, the IRS says the co-owners may allocate the credit between themselves in any reasonable manner. Planning Alert! The IRS warns that no portion of the credit may be allocated to a co-owner who would not otherwise qualify. Tax Tip. If one unmarried co-owner qualifies for the credit, but the other does not (e.g., due to AGI limits or previous ownership within 3 years), the IRS says that you can allocate theentire credit to the co-owner who qualifies. Also, if you purchase a qualifying home while you are single, you presumably will still qualify even if you later marry a non-qualifying person in the same tax year (assuming that you still satisfy the income phase-out thresholds).
- If I Buy My First Home In 2009, May I Take The Credit On My 2008 Return? If you purchase your qualifying residence after 2008, and before December 1, 2009, you may elect to treat the purchase as made on December 31, 2008. This election allows you to accelerate the tax benefit of your 2009 purchase by one year. You may even make this election on an amended 2008 income tax return. Presumably, if you make this election, any income phase-out will be based on your 2008 income, even though you purchased the home in 2009. Also, if you make this election to take the credit on your 2008 return for a 2009 purchase, you should be exempt from the 2008 15-year recapture provisions and will, instead, be subject to the2009 36-month recapture rule.
Disclaimer: The information or advice transmitted in this message (including any attachments) is intended only for the person or entity to which it is addressed, in connection with the specific issue or transaction discussed or referenced within this message. This message may contain confidential, proprietary, and/or privileged material, thus any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient is prohibited. If you received this in error, please contact the sender, destroy all printed copies and delete the material from all computers.
As required by U.S. Treasury regulations (Circular 230), please be advised that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any recipient for the purpose of (i) avoiding tax-related penalties under the U.S. Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
Word of the Day
Ask the Experts
Question of the Day
Member Login
Join RealTown
Request Password
RealTown RSS Feed