by Hunt Rounsavall
11. April 2009 11:16
Some of the most frequent questions we get nowadays at the Rounsavall Title Group are from potential home buyers about the new tax credit that might be available to them. There are apparently still many questions about what this credit is and who is eligible to claim it, so the purpose of this blog entry will be our attempt to clarify some of these issues for you. This credit enacted as a part of the American Recovery and Reinvestment Act of 2009, which was signed into law by President Obama on February 17, 2009. The stated purpose of the Act was to stimulate the economy in the wake of the current economic downturn, and one manner by which the Act attempts to accomplish this is through the first-time homebuyer's tax credit, which Congress hopes will be one way it can help revive the housing market. As an initial matter, keep in mind that this credit is available to first-time homebuyers, which is defined by the IRS as anyone who has not owned a principal residence in the previous 36 months leading up to the date of acquisition of the property (i.e. the closing), so it does not mean that previous homeownership prevents you from utilizing this credit. There are also some income limitations on buyers in order to take advantage of the full tax credit, in that single taxpayers with annual incomes up to $75,000.00 and married taxpayers with annual incomes up to $150,000.00 qualify for the full credit. The credit is gradually reduced (or “phased out”) as modified adjusted gross income (MAGI) approaches $95,000.00 for singles and approaches $170,000.00 for married couples, at which point the credit is reduced to zero. Next, this credit only applies if the qualified buyer purchased the property on or after January 1, 2009 and prior to December 1, 2009. If you meet these three standards, you should be able to take advantage of the full credit, which is 10% of the purchase price of the home up to $8,000.00, and this credit does not have to be repaid as long as the homebuyers maintain the property as their primary residence for three (3) years.You might recall that a similar credit was introduced by Congress in the form of the Housing and Economic Recovery Act of 2008 (which applied to first homes purchased on or after April 8, 2008), but there are a couple of important distinctions between these two credits of which you must be aware:
- The maximum tax credit under the 2008 Act was $7,500.00, while the maximum credit under the 2009 Act is $8,000.00;
- The 2008 tax credit operated much like an interest-free loan, as it had to be repaid to the IRS over a 15-year period, while the 2009 credit need not be repaid at all, as long as the owners live in the property for three (3) years;
Also, keep in mind that this credit can be claimed on your 2008 returns: people who purchased a home in 2009 and have already filed a 2008 return claiming the $7,500.00 credit based on the 2008 Act can (and probably should) amend their return to claim the balance of the credit to which they are entitled (up to $500.00, the difference between the maximum credits available). We understand that all of this can be a bit overwhelming, so if you would like to discuss any of these concepts at greater length, feel free to give us a call.
