Last Time about Tax Credit

Bringing the Dream of Homeownership Within Reach

As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress has passed new legislation that: Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.
Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.
Here is more information about how the Extended Home Buyer Tax Credit can help prospective home buyers become part of the American dream. If you have specific questions or need additional information, please contact a tax professional or the Internal Revenue Service at 800-829-1040.


Who Qualifies for the Extended Credit?

First-time home buyers who purchase homes between November 7, 2009 and April 30, 2010.
Current home owners purchasing a home between November 7, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.
To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.
If you or your client purchased a home between January 1, 2009 and November 6, 2009, please see: 2009 First-Time Home Buyer Tax Credit.


Which Properties Are Eligible?

The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.


How Much Is Available?

The maximum allowable credit for first-time home buyers is $8,000.
The maximum allowable credit for current homeowners is $6,500.
How is a Buyer's Credit Amount Determined?
Each home buyer’s tax credit is determined by two additional factors:
The price of the home.
The buyer's income.

Price
Under the Extended Home Buyer Tax Credit, credit may only be awarded on homes purchased for $800,000 or less.

Buyer Income
Under the Extended Home Buyer Tax Credit, which is effective on November 7, 2009, single buyers with Incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit. These income limits have changed from the 2009 First-Time Home Buyer Tax Credit limits.

If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?
Yes, some buyers may still be eligible for the credit.
The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $145,000 for singles and over $245,000 for couples are not eligible for the credit.

Can a Buyer Still Qualify If He/She Closes After April 30, 2010?
Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.

Will the Tax Credit Need to Be Repaid?
No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.

FORM 5405 for homebuyers' tax credit

If you bought the house and want to receive the tax credit of $8,000 or $6,500, Make sure you are aware of the new form released by the Internal Revenue Service (FORM 5405) that eligible homebuyers need to claim for their 2009 tax filing if they took advantage of this first-time homebuyers credit.

Taxpayers claiming the homebuyer credit must file a PAPER tax return because of the added doc...umentation requirements implemented to deter fraud and ensure taxpayers properly claim the credit. Additional requirements and link to FORM 5405 provided in the link.See More

http://www.irs.gov/newsroom/article/0,,id=218336,00.html

common misconceptions about the federal government's tax credit for first time home buyers:

Real estate agent Michael Maher joined FOX 4 Wednesday morning to clarify the most common misconceptions about the federal government's tax credit for first time home buyers:

1. It's only for people who've never bought a home. False! If you sold a home in the past and rented for the last three years, you may qualify.

2.It has to be paid back. False, this is a tax credit. You will receive a check from the federal government four to six weeks after you complete the form at the closing of your home purchase.

3.It's a lengthy and difficult process to get the tax credit. Fase, it's just one form you have to fill out for the IRS.

4. You can use the tax credit for your down payment. False. Some lenders offer some programs which require you to sign over your credit to them, but be very cautious about these. Read all the fine print! Technically, the way the program is structured, the money is not for your down payment.

Again, you do not receive the money at closing. You will receive it four to six weeks after closing.

5. There's plenty of time left to buy. False. You must close on or before November 30th, 2009, to take advantage of the tax credit. Remember that closing on a house takes 30 to 60 days. Leave yourself plenty of time for the inspection, title search and document preparation.

You can find out if the tax credit will work for you at a free seminar, Friday, Aug. 14, at 4 p.m., at the Overland Park Convention Center. To register, call 1-800-441-7699, EXT. 4664

Copyright © 2009, WDAF-TV

You might be ablt to use tax credit ($8,000) IMMEDIATELY!

The American Recovery and Reinvestment Act of 2009 offers homebuyers a tax credit of up to $8,000 for purchasing their first home. Families can only access this credit after filing their tax returns with the IRS. Today's announcement details FHA's rules allowing state Housing Finance Agencies and certain non-profits to "monetize" up to the full amount of the tax credit (depending on the amount of the mortgage) so that borrowers can immediately apply the funds toward their down payments. Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate. To read the FHA's new mortgagee letter, visit HUD's website.

Home Run Grant to Purchase property in Utah

Besides $8,000 federal tax credit that applies to first time home buyers or those who haven't owned the home in the past three years:

Utah Governor in March signed local grant - award - $6,000 So called home run grant is a mortgage assistance program for home buyers who purchase a newly-constructed, never occupied primary, single family residence in Utah. Home buyers must meet following income restrictions: single person - $75,000 and married couple - $150,000. Again, this grant is additional and separate from federal grant, you have to work directly with mortgage banker, for step-by-step instruction visit utahhousingcorp.org...

Is there anyway for a home buyer to access the money alloacable to the credit sooners than waiting to file their 2008 tax return?

Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downnpayment. Buyers should adjust their withholding amoun ton their W-4 via their employer or through their quarterly estimated tax payment. ISR Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qaulified purchase does not occur, then the individial would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Can I treat purchase as if it occured in 2008 or 2009?

For a home purchase in 2009, you can treat as if it happened in 2008 or 2009. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit qould be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount

If you are qulified for the tax credit and buy home in 2009, can you apply the tax credit in 2008?

Can you apply the tax credit against your 2008 tax return?

Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the ourchase occurred on Dec. 31, 2008. This means that the 2008 income limit (MAGI) applies and the elction accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns).

A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty thereby helping the buyer know whether the income limit will reduce their credit amount.

First Home Buyers' Tax Credit: credit or zero interest loan?

It is a zero interest loan, because the tax credit must be repaid. Assuming an interest of 7%, that menas the home owner saves up to $4,200 in interest payments over the 15-year repayment preiod. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in lax liability in the year it is claimed.

Does the credit need to be paid back to the government?

Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale.

For example, a home buyers claiming $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until 2010 tax return is filed. I fhte home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven

what is the difference between a tax credit and a tax deduction?

A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

A tax deduction is substracted from the amount of income that is taxed. Using the same example, assume the taxpayers is in the 15% tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer;s tax liability would be reduction by $1,125 (15% of $7,500), or lowered from $7,500 to $6,375

Tax Credit - Refundable...

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $7,500 home buyer tax credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owned)

Income Limit for first home buyers tax credit

are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?

In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $7,500, the credir will equal 10% of the purchase price.

Does the credit amount differ based on tax filing status?

No. The credit is in general equal to $7,500 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as "married filing separately" (in effect, filling two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.

Modified Adjusted Gross Income (MAGI) Limit for tax credit qualification

If MAGI is above the limit, do you qualify for tax credit?

Possibly. It depends on your income. Partial credits of less than $7,500 are available for some taxpayers whose MAGI exceeds the phaseout limits. The credit becomes totally unavailble for individual taxpeyers with modifiyed adjusted gross income of more than $95,000 and for married taxpayers filling joint returns with an AGI of more than $170,000

Tomorrow, I will cover how partial credit is calculated...

Modified Adjusted Gross Income?

Modified Adjusted Gross Income or MAGI is defined by the IRS. To find it, a taxpayer must first determine his/her "adjusted gross income" or AGI. AGI is total come for a year minus certain deductions (known as "Adjustments" or "above th eline deductions"), but before itemized deductions from Schedule A or personal exemptions are substracted. On Forms 1040 or 1040-A, AGI is the l ast number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of incomes icluding wages, salaries, interest income, dividents and capital gains.

To determine modified adgusted gross income (MAGI), add to AGI certain amounts such as foreighn income, foreign-housing deductions, student loan deductions, IRA-contribution deductions and deductions for higher-education costs.

Tomorrow, I will cover limits of MAGI for the purpose of first home buyers' tax credit...

I construct my own home...Do I still qualify for first home buyers' tax credit?

let's say instead of buyering a new home from a home builder, you have hired a contractor to construct a home on a lot that you already own. Do you qualify for this tax credit?

Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or before April 9, 2008 and before July 1, 2009.

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

What type of home qualifies for the first home buyers' tax credit?

Any home purchased by an eligible first home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previopus three years. This includes single family detached homes, attached homes like townhouses and condominiums, manufcatured homes (also known as mobile homes) and houseboats.

Who is first home buyer?

The law defines "first home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase.

For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first time home buyer tax credit.

Ownership of a vacation hom e or rental property not used as a principal residence does not disqualify a buyer as a first home buyer.

Tomorrow, I will cover how to claim this tax credit...

First Time Home Buyer Tax Credit: Who is eligible?

First time home buyers purchasing any kind of home - new or resale- are eligible for the tax credit. Top qualify for the tax credir, a home purcvhase must occur on or after April 9, 200+8 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.

Tomorrow, I will cover who first home buyer is...