|
Details of House/Senate Compromise
First Time Home Buyer Credit
The United States House and Senate compromise on our 2009 Stimulus law has just been made public and provides for an $8,000 tax credit for first time home buyers who purchase a primary residence after December 31, 2008 and prior to December 1, 2009.
This 2009 legislation modifies the 2008 law which created a $7,500 credit which the taxpayer had to repay to the government over 15 years. The big difference with the 2009 stimulus is that the $8,000 credit does not have to be repaid to the government (so long as home owned 3 years) for homes purchased between January 1 and before December 1, 2009. The $15,000 stimulus you may have heard of was in the Senate version and did not survive compromise negotiations. The $8,000 credit is, however, still substantial and a great motivator for the first time home buyer who won’t get off the fence.
Below are highlights of this credit in a “Frequently Asked Questions” format:
- Who is eligible?
First time home buyers (single person who has not owned primary residence in 3 years prior to closing, if married, 3 year test must be passed by both husband and wife);
- Amount of the credit?
Lessor of 10% of the sales price or $8,000. Any purchase price over $80,000 gets full credit.
- Must the credit be paid back?
For purchases after December 31, 2008, No. For purchases between April 9, 2008 and December 31, 2008, the $7,500 credit (which applies to 2008 purchases) is repaid over 15 years or upon sale of the home.
- How long must the new home be owned?
As long as the taxpayer holds the home for 3 years, no repayment of the credit (for 2009 purchase) is due.
- Can the taxpayer build the new home?
Yes, so long as its occupied by the taxpayer before December 1, 2009.
- What is a Tax Credit?
Unlike a tax deduction which reduces the taxable income subject to tax, a Tax Credit is real money, a dollar for dollar reduction in your tax bill. If you owe the IRS $2,000 and have the full credit, you get back $6,000. If your entitled to a $1,000 tax refund and have the full credit, you get back $9,000. Even if the purchaser doesn’t owe taxes, they get back $8,000.
- Do Owner - Finance Sales qualify?
Depends - If it’s a lease purchase, you must exercise your option and take title before December 1, 2009, and the same rule appears to apply to contract for deed arrangements. Straight owner finance deals (where buyer gets a deed and signs a mortgage in favor of seller) qualify for the credit, even if it’s a 100% seller finance. Bottom line - anyone with lease-purchase, lease-option or contract for deed arrangements (even signed years prior) needs to find a way to take title before December 1, 2009.
- Are there income limits for buyers seeking the credit?
Yes - For a full credit, a single taxpayer must have a modified adjusted gross income of $75,000 or less, the credit totally phased out by $95,000. Married taxpayers get the full credit if their modified adjusted gross income is $150,000 or less, with the credit phased out completely at $170,000.
- What type homes qualify?
Single family dwellings, condominium units, manufactured or mobile homes, planned unit developments. The property must be a primary residence for the homeowner.
- When do I get the money?
A taxpayer who has not filed their 2008 tax return may treat a 2009 purchase as having occurred on December 31, 2008, and get their money in 2009 as part of their 2008 refund. Otherwise, the credit will be shown on their 2009 tax return filed in 2010. The taxpayer is also allowed in 2009 to reduce their withholding from their employer and get back part of their money by paying less taxes on each paycheck.
|
|
