· The maximum amount of the credit has been increased from $7,500 to $8,000.
· The enhanced credit is available on home purchases which close between January 1 and November 30, 2009. Home purchases which closed in 2008 must follow the original rules for the credit.
· The allowable credit for personal residences purchased in 2009 does not have to be paid back, unless within 36 months of the date of purchase the property is sold or longer used as the taxpayer's principal residence (i.e. converted to vacation home or rental property). The "credit" for 2009 purchases is no longer an interest free loan from the government but an outright gift from Sam!
Many of the provisions of the “original” credit, enacted in the Housing and Economic Recovery Act of 2008 (see my post "THE HOUSING BILL AND THE 1040"), remain the same.
· The home must be physically located in the United States. A home located in a U.S. Territory does not qualify.
· A “first-time homebuyer” is a taxpayer who has not owned another principal residence at any time during the three years prior to the date of purchase. According to the IRS website “a taxpayer who owned a principal residence outside of the United States within the last three years is not disqualified from taking the credit for a purchase within the United States.”
· The credit is phased out for Modified Adjusted Gross Income (MAGI) of between $75,000 and $95,000 for single filers and $150,000 and $170,000 for joint filers. To determine MAGI you must add excluded foreign income and deductions related to foreign income back to AGI.
· The credit is fully “refundable”. It is treated the same as federal withholding or estimated tax payments on the Form 1040 (or 1040A).
· You can elect to claim the credit for a 2009 home purchase on your 2008 federal income tax return.
· The amount of the credit that must be repaid if the home is sold is limited to the gain on the sale of the property. When determining the gain you must reduced the “adjusted basis” of the home by the amount of the credit claimed. The repayment must be made in the year of the sale.
If you purchased a home in early 2009 and had already filed your 2008 tax return to claim the old $7,500 credit you can amend the 2008 return to claim the additional $500 credit.
According to the IRS, “You can not claim the credit in anticipation of a purchase that has yet to happen. Until you have finalized the purchase of your home, which for most purchasers occurs at the time of the closing, you do not qualify for the credit.”
A principal residence that you build also qualifies. The IRS tell us that “By statute, a residence which is constructed by the taxpayer is treated as purchased on the date the taxpayer first occupies the residence” – so the credit cannot be claimed until you actually move in.
In the above two instances once you close on or move into the home you can file an amended 2008 return to claim the credit.
For more information on the enhanced, and the original, credit you can go to the IRS website First-Time Homebuyer Credit page and check out my post on “HOW TO ALLOCATE THE 1ST TIME HOME BUYER CREDIT AMONG NON-RELATED OWNERS”.