Homebuyer Tax Credit

Homebuyer Tax Credit Chart

    The hot topic in the real estate industry is the “Worker, Homeownership and Business Assistance Act of 2009” which was signed into law on November 6, 2009. There have been several changes to further help stabilize the housing market as well as to prevent abuse of the credit. The tax credit reduces the amount of the tax liability you owe. If the credit is more than the taxes you owe, the difference is paid to you as a tax refund.

    One of the biggest changes is that current homeowners are now eligible for the tax credit in addition to first-time homebuyers. Current homeowners who are replacing their principal residence (the home in which they live in most of the time) and have lived in that home consecutively for at least five of the previous eight years are eligible for a tax credit of 10% of the purchase price up to $6,500 ($3,250 if married filing separate).

    First-time homebuyers may not have had an interest in a principal residence for three years prior to purchase. Buyers who qualify are eligible for a tax credit of 10% of the purchase price up to $8,000 ($4,000 if married filing separate).

    The tax credit has been extended to a principal residence bought before May 1, 2010. It also applies if a written binding contract to purchase is in effect on April 30, 2010 as long as it closes by June 30, 2010. The income limit has been raised to $125,000 for single buyers and $225,000 for married buyers. There is an additional $20,000 phase out in which the credit phases out for those with a modified adjusted gross income between $125,000 and $145,000 for single filers and $225,000 and $245,000 for joint filers.

Here are some restrictions to the tax credit as of November 7, 2009:

·         There is a now a home price limit of $800,000. If the purchase price of the home exceeds this amount, the tax credit cannot be claimed.

·         A purchaser who can be claimed as a dependent by another taxpayer is not eligible for the credit.

·         The purchaser must have attained the age of 18 prior to the date of purchase to receive the tax credit. The only exception to this rule is that if married, only one spouse must meet the requirement.

    Eligible homebuyers have the option of claiming their credit for the tax year in which they purchased the qualifying home or by filing an amendment to the previous year’s taxes. Documentation of the purchase must now be attached to the tax return. To prevent abuse of the credit, the IRS has been given more authority to deny the credit and that authority has been extended to go back to returns and amendments from 2008.

    The Realtors® at Hawkeye Real Estate make every effort to stay informed about the homebuyers tax credit as well as other topics pertinent to the real estate market. If you have questions about the tax credit, please contact your Realtor® or tax professional.