Home Buyers Receive $8,000 Tax Credit!!!

(American Recovery & Reinvestment Act 2009)

Here’s what’s going on…

The American Recovery & Reinvestment Act of 2009 is offering first time home buyers an $8,000 tax credit.  The tax credit discussed in this report is only for homes purchased by first-time homebuyers (see definition below) between January 1 and November 30, 2009…for a total of 11 months!

Here are some of the top questions complied and answered by the National Association of Mortgage Brokers, the National Association of Realtors and tax advisors! Remember, always seek legal and tax advice!

Who Is Considered a First-Time Home Buyer?

Anyone who has not owned a home within the last 3 years qualifies. If they sold a home 3 years ago, the date on the HUD 1 is the determining factor.

For a married couple, if one person owned a home within the last 3 years and the other did not, they don’t qualify for the tax credit.

However, if an unmarried couple jointly buys a home, and one person owned a home within 3 years and the other did not, they can “designate” the tax credit to that person who will be able to claim it on their individual tax return. This rule also applies for parents who co-sign on a mortgage. While the parents own a home the child is a FTHB, who can claim the tax credit.

If the FTHB owns a second home or a rental property, which was not used as a primary residence within the last 3 years, they may qualify as long as they are able to prove it!

A non-US citizen, who meets resident-alien status (defined by the IRS Publication 519) is also eligible as long as they meet the requirements above and income limits

Types of Homes?

Pretty much any type of home qualifies—as long as it is a principal residence (as defined by the IRS). Single family, town homes and condos, manufactures or mobile homes and even houseboats qualify! A newly constructed home purchased from a homebuilder is determined by the date on the HUD 1.

However, If a borrower is building a home (for a principal residence) and owned the land prior to January 1, 2009, the tax code says that the “purchase date” is the date that the owner “first occupies” the home, which must be between January 1 and November 30, 2009.

Is It a Tax Credit Or a Loan?

If someone purchased a home between April 9 and December 31, 2008, what they received is a  “tax credit” because they got the tax credit money upfront—but it really was an “interest-free” loan which is paid back for the next 15 years or upon the sale of the home (within 3 years of purchase). The “payback” is based upon the balance owed and not the entire tax credit received.

**However, if the home is sold within 3 years of the purchase date, the entire tax credit has to be paid back.

How The Dollar Amount of Tax Credit is Figured
Take 10% of the home’s purchase price or a maximum of $8000. A tax credit can be claimed regardless if they obtain a mortgage, a tax-revenue mortgage or the buyer paid cash when purchasing the home.

Income Limits
Remember, first-time homebuyers should seek advice from a tax expert. Here is the “simple” explanation based on several scenarios, but keep in mind that the income number is always based on Modified Adjusting Gross Income (MAGI). You will find that the MAGI income on the following lines of the 3 tax forms.

IRS 1040 Form - line #37
IRS Form 1040A - line 21
IRS1040EZ - line 4

Single taxpayer: MAGI of $75,000 or less
Married taxpayer: MAGI of $150,000 or less

There is a provision for those singe and married who EXCEED the income limits to claim a partial tax credit. A “tax credit formula” has been created to determine the dollar amount. For example, if a single tax payer’s MAGI is $82,000, they could get a partial tax credit of $5200.

**Taxpayers can choose to claim their tax credit on either their 2008 tax returns or wait until the 2009 tax year to file. For example, if they exceed the income limit in 2008 (which would only qualify them for a partial credit) but their income has been decreased in 2009 due to a temporary layoff or cut back in over time, they can wait until 2009 to claim the tax credit (for the full tax credit).

Miscellaneous Strategies

For home buyers who do not want to wait until the end of the year to claim their tax credit, they should consider filing a W-4 form with their employer, decreasing the amount withheld for federal taxes. They may not get a check at the end of the year, but it will increase the dollar amount of their paycheck.

Another option for FTHB’s is to borrower the dollar amount of the expected tax credit from a relative (usually a parent) and pay it back when the tax credit is received. It could be used towards down payment and closing costs and FHA and VA will allow it. Be sure to check with the lender and the documentation required.

Always consult a tax professional before making a decision.  It’s always more complicated than one might think.

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