Our local association of realtors had a seminar on the new first time homebuyer tax credit. While I focus on commercial real estate, I attended in order to see if there was any additional information on other new tax laws and there was and that will be a separate post. Below is the information provided by the Peoria Area Association of Realtors. Please consult a tax expert prior to taking advantage of the program below to see if it is right for you and that you have all the information for your situation. The information below is created for the purpose to present to the general group of realtors.
So...what did I learn?
Definition of First-Time Homebuyer:
- Buyer who has not owned a principal residence during the three-year period prior to the current purchase date.
- "Principal residence" is defined as living there more than 50% of the year. For married taxpayers, the law tests the homeownership history of both the homebuyer and his/her spouse.
How much is the credit and what homes qualify?
- 10% of the purchase price of the home, up to a maximum available credit of $7500 and $3750 for married people filing separate returns.
- Any new or resale home qualifies.
- INTERESTING FACT: Houseboats qualify!!! I was amazed to hear this.
Income Limits
- Income restriction based on the filing status
- Single or head of household if their MAGI (modified adjusted gross income) is no more than $75,000 - individuals who file a joint return may have MAGI of more than $150,000
- There is a phase out of the tax credit for those whose income exceeds the $75,000 & $150,000 respectively.
- Example: Couple's Income: $165,000, Income Limit: $150,00; Excess income: $15,000
- Excess income amount is used to form a fraction--- $15,000/$20,000=75%. The disallowed amount is 75% of the tax credit -- $5,625 or state another way 25% of the tax credit would be allowed which is $1,875
Who Does Not Qualify?
- Your income exceeds the phase out range.
- You buy your home from a close relative (includes your spouse, parent, grandparent, child, or grandchild).
- You stop using your home as your main home.
- You sell your home before the end of the year.
- You are a nonresident alien. Resident aliens with an ITIN are eligible for the credit.
- Your home financing comes from tax-exempt mortgage revenue bonds.
- You owned another main home at any time during the three years prior to the date of purchase.
Claiming Homebuyer Tax Credit
- Tax credit claimed on federal income tax return Form 1040
- Credit is a "refundable tax credit"
- Credit can create return filing obligation for some individuals who would otherwise not file.
- Credit allowed against alternative minimum tax
- Homebuyers may elect to treat purchase between January 1, 2009 and July 1, 2009 as occuring in 2008 for claiming the tax credit.
- NOTE: The closing of the property needs to happen prior to June 30th in order to count.
Repayment of Homebuyer Credit
- The credit is recaptured over 15 years in equal installments.
- Beginning with the second tax year.
- No recapture of credit after taxpayer's death
- Taxpayers may need to increase withholdings or make additional estimated tax payments to cover recapture amount.
Sale of Residence
- If taxpayer disposes of the residence for which the first time homebuyer credit was claimed before the end of the recapture period (15 years), the taxpayer's tax for the year of disposition is increased by the excess of the credit allowed over the amount of the credit recapture in prior years.
- Example -- Taxpayer, a first time home buyer, purchases a home in 2008 for $100,000. A $7500 credit is allowed on the taxpayer's 2008 tax return. Recapture of $500 a year begins on the taxpayer's 2010 return. The taxpayer sells his home in 2012. The taxpayer must pay an additional tax of $6,500 in 2012. The $6,500 represents the excess of the $7,500 credit less the $1,000 balance of the credit previously recaptured in 2010 and 2011 respectively.
Recapture of Credit
- Recapture amount limited to amount of gain recognized on sale of residence if sold to an unrelated person.
- Recapture of the credit required if residence ceases to be the taxpayer's principal residence. (aka becomes a vacation home or rental property)
- No accelerated recaptrue in incidents of transfer relating to divorce (IMPORTANT)
- No accelerated recapture in incidents of involuntary conversions
- NOTE: eminent domain and foreclosure are NOT involuntary conversions
Additional Standard Deduction for Property Taxes
- Taxpayers can deduct property taxes and mortgage interest as an itemized deduction.
- Taxpayers with itemized deductions not exceeding their standard deduction are better off using the standard deduction - no benefit for property taxes paid.
- The Housing Assistance Tax Act of 2008 allows homeowners to claim additional standard deduction for property taxes equal to: the amount of real estate taxes property taxes paid during the year, or $500 ($1000 for married filing jointly)
- Additional standard deduction for property taxes applies to the 2008 and 2009 tax years only.
- Standard deduction: single = $5,450
- Standard deduction: married filing joint = $10,900
Again, this is the information provided during the meeting. PLEASE check with your tax advisor before taking advantage of this program to ensure it is right for you.
