The First-time Homebuyer Tax Credit (Credit) allows new homeowners the opportunity to receive a tax credit of up to $8,000 to help them purchase a home. The Credit was originally set to expire on December 1, 2009, but was recently extended and expanded.
The Worker, Homeownership, and Business Assistance Act of 2009 (Act) extends and liberalizes the Credit by making it available to (a) higher income taxpayers and (b) existing homeowners who are qualifying long-time residents and purchase another principal residence. However, for the first time there will be a dollar cap on residences qualifying for the credit.
The Credit is now available on a principal residence purchased before May 1, 2010. The Credit also applies to the purchase of a principal residence that is closed before July 1, 2010, where the contract to purchase was binding before May 1, 2010. In addition, the homebuyer may elect to treat a qualifying home purchase after 2008 as made on December 31 of the calendar year preceding the purchase. Making this election allows homebuyers to claim the Credit on their prior year's tax return and may allow them to receive their money sooner.
The Act allows more taxpayers to qualify for the Credit by increasing the modified adjusted gross income (MAGI) limitations. For home purchases after November 6, 2009, eligibility for the Credit now phases out for individual taxpayers with a MAGI between $125,000 and $145,000 for the year of purchase. For joint filers, the phase-out range is $225,000 to $245,000. Prior to the Act, the phase-out ranges were between $75,000 and $95,000 ($150,000 and $170,000 for joint filers).
The Credit is now available to long-time residents for home purchases after November 6, 2009. An individual, and spouse if married, who has maintained the same principal residence for any five consecutive years during the eight-year period ending on the date of purchase of a subsequent principal residence is eligible for a reduced Credit. The maximum credit available for these taxpayers is $6,500 ($3,250 for a married individual filing separately).
Example: Homebuyer Credit Available to Long-time Residents. Joe and Cass purchased their home on Magnolia Street 15 years ago, and it has been their principal residence since. In 2010, they decide to downsize and close on a smaller $240,000 home on February 12. Their 2010 MAGI is estimated to be less than $150,000. At the time of purchase, Joe and Cass will be eligible for a Homebuyer Credit of $6,500, the maximum credit available to taxpayers who meet the definition of long-time resident.
The Act sets a maximum purchase price of $800,000 with no phase-out on homes qualifying for the Credit. Prior to the Act, there was no such limitation.
Please contact us if you have questions about how you might qualify for or benefit from this Credit.
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