First-Time Homebuyer Changes

A first-time homebuyer credit applies to individuals who purchase a home on or after April 9, 2008 and before April 30, 2010.  However, if the buyer has the home under contract by April 30, 2010 they have until June 30, 2010 to close and still qualify for the credit.

The adjusted gross income cap of the credit has been increased as well.  It is now $125,000 for single taxpayers and $225,000 for married filing jointly.

Long-Time Homeowners
Who Qualifies

This credit applies to all existing homeowners who purchase a replacement principal residence and have lived in the same principal residence for any five consecutive year period within an eight year period that ends on the date the replacement house is purchased.  For these homeowners, there is a credit equal to 10% of the purchase price, capped at $6,500.  The same caps for adjusted gross income existing in the first-time homebuyer credit also apply to this credit.  This legislation was signed into law on Nov. 6, 2009.  Therefore only homes bought after this date and before April 30, 2010 qualify.  If a home is under contract by this date, the purchaser has until June 30, 2010 to close and still qualify for the credit.  Any home purchase exceeding $800,000 will be excluded from this credit

When Can The Credit Be Claimed?

The credit is taken in the year the taxpayer purchases the home.  The date of purchase is the date title closes.  However, a taxpayer purchasing the home in 2009 may elect to claim the credit on their 2008 tax return instead of waiting to file it on their 2009 tax return.  An amended return may be filed to claim the credit for 2008.  This rule will also apply for homes bought in 2010.  You may file the credit on your 2009 return or wait until filing your 2010 return to claim the credit.

New Filing Requirements For Both Credits

Due to fraudulent credit reporting, the IRS has issued new guidelines for reporting credit.  The following items must be sent with the return when the credit is being filied: a copy of the closing statement (including signatures of all parties, names of seller and buyer, property address and purchase price), a copy of taxpayer’s most recent mortgage statement, and verification that the property is a residence.  To verify the property is a residence at least two of the following items showing taxpayer’s name and address required:  driver’s license, pay statement received in past 2 months, back statement received in past 2 months, or current auto registration.  If the home is newly constructed, an occupancy permit must be submitted for that property.

First -Time Homebuyer Changes

A first-time homebuyer credit applies to individuals who purchase a home on or after April 9. 2008 and before April 30, 2010.  However, if the buyer has the home under contract by April 30, 2010 they have until June 30, 2010 to close and still qualify for the credit.

The adjusted gross income cap of the credit has been increased as well.  It is now $125,000 for single taxpayers, and $225,000 for married filing jointly.

Long-Time Homeowners
Who Qualifies?

This credit applies to all existing homeowners who purchase a replacement principal residence and have lived in the same principle residence for any five-consecutive year period with in an eight-year period that ends on the date the replacement home is purchased.  For these homeowners, there is a credit equal to 10% of the purchase price, capped at $6,500.  The same caps for adjusted gross income existing in the first-time homebuyer credit also apply to this credit.  This legislation was signed into law on November 6, 2009.  Therefore, only homes bought after this date and before April 30, 2010 qualify.  If a home is under contract by this date, the purchaser has until June 30, 2010 to close and still qualify for the credit.  Any home purchase exceeding $800,000 will be excluded for the credit.

When can the credit be claimed?

the credit is taken in the year the taxpayer purchases the home.  The date of purchase is the date title closes.  However, a taxpayer purchasing the home in 2009 may elect to claim the credit on their 2008 tax return instead of waiting to file it on their 2009 tax return.  An amended return may be filed to claim the credit for 2008.  This rule will also apply for homes bought in 2010.  You may file the credit on your 2009 return or wait until filing your 2010 return to claim the credit.

New Filing Requirements for Both Credits.

Due to fraudulent credit reporting, the IRS has issued new guidelines for reporting the credit.  The following items must be sent with the return when the credit is being filed: a copy of the closing statement (including signatures of all parties, names of seller and buyer, property address and purchase price), a copy of taxpayer’s most recent mortgage statement, and verification that the property is a name and address required:  driver’s license, pay statement received in past 2 months, bank statement received in past two months, or current auto registration.  If the home is newly constructed, and occupancypermit must be submitted for that property.

Tax break for buying a home

The legislation also would extend the $8,000 homebuyer tax credit to contracts signed by April 30 and closed by June 30. The controversial credit, which many say has boosted home sales in recent months, was set to expire after Nov. 30.

The bill also creates a $6,500 credit for those who buy a home after living in their current house at least five years. That measure would apply to contracts signed by April 30 and closed by June 30. The current credit defines a first-time homebuyer as someone who has not owned a residence within the past three years.

The credit would be available only for the purchase of principal residences priced at $800,000 or less.

The bill would raise the adjusted gross income cap to $125,000 for single filers and $225,000 for joint filers. The amount of the credit currently begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

“It’s gonna put people back to work, the home builders, put people in the real estate business,” said Sen. Chris Dodd, D-Conn. “The kind of jobs that can make a difference.”

The extension will cost $10.8 billion over 10 years, according to the Joint Committee on Taxation.

Through mid-September, 1.4 million tax returns had qualified for the credit, according to the IRS. Some portion of those returns, which the IRS couldn’t specify, represents buyers who took advantage of an earlier version of the tax credit, which was only worth $7,500 and has to be repaid over time.

By the end of November, the credit will have been used by 1.8 million homebuyers, at least 355,000 of whom would not have bought a house without the tax break, according to estimates by the National Association of Realtors.

“The data on the present home buyer tax credit show that the credit has had its intended impact — sales have jumped in recent months to a projected 5.1 million for the year and housing inventory has been trimmed, thus stabilizing home prices noticeably,” said Ron Phipps, the association’s first vice president, in Senate testimony last month.

The credit, however, has also posed many problems. Critics say it’s a waste of money because most of those claiming the credit would have bought homes anyway.

It’s also been the target of fraud. Some 74,000 people claimed more than $500 million in credits even though they may not be first-time homeowners, according to Treasury officials. And more than 580 children, including some as young as 4-years-old, have claimed the credit.

“Some key controls were missing to prevent an individual from erroneously or fraudulently claiming the credit and receiving an erroneous refund of up to $8,000,” said J. Russell George, Treasury inspector general for tax administration, before a House subcommittee last month.

To search for your home or get preapproved now, go to: www.TheFastestGrowingCityinTexas.com

Good news for those of you who thought the window on a $8,000 homebuyer tax credit had closed — the Senate voted yesterday to extend it!

The measure now moves to the House and it’s expected to support the Senate’s vote. The bill could be on the president’s desk by next week.

This new legislation would extend the $8,000 homebuyer credit to contracts signed by April 30 and closed by June 30. The controversial credit, which many say has boosted home sales in recent months, was set to expire after Nov. 30.

The Senate’s bill also created a $6,500 credit for those who buy a home after owning one for the last five years. That measure would apply to contracts signed by April 30 and closed by June 30. (The current credit defines a first-time homebuyer as someone who has not owned a residence within the past three years.)

In addition, the Senate bill raises the adjusted gross income cap to $125,000 for single filers and $225,000 for joint filers. (The amount of the credit currently begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.)

D. Stephen Steakley, Jr.
Austin, Texas Home Loan Expert
512-577-8898 ph
Austin, TX Home Loan – Quick Application

Tax Credit To Help Georgia HomeBuyers

In the midst of one of this countries deepest recessions comes one of it’s greatest opportunities, for new homebuyers. With mortgage rates and housing prices at an all time low, there has never been a better time to buy a new home. And The American Recovery and Reinvestment Act of 2009 has provided yet another tool to help Georgia families on the road to homeownership. Along with securing a home loan and a good real estate agent, Georgia Homebuyers should begin planning now to take advantage of a new tax credit that will supplement, or even provide, the downpayment for that new home.

The following section will provide questions and answers to help new homebuyers understand how the tax credit can, and will, work for them.

1. Am I eligible for the tax credit?
2. Do I qualify as a first-time home buyer?
3. How will my tax credit be calculated?
4. Is there an income limit for the tax credit?
5. How do I know my “modified adjusted gross income”?
6. If my modified adjusted gross income (MAGI) is above the limit, can I still qualify for the tax credit?
7. What is an example of how the partial tax credit is determined?
8. How is this home buyer tax credit different from the tax credit that was enacted in July of 2008?
9. How do I claim the tax credit? Is there a form or application to fill out?
10. Is the tax credit only for certain types of homes?
11. What does it mean that the tax credit is “refundable”?
12. If I have already filed to receive the $7,500 tax credit on my 2008 tax returns, for a home I purchased in early 2009, can I submit a claim for the new $8,000 tax credit instead?
13. Do I still qualify for the tax credit if I hired a contractor to construct a home on a lot that I already own?
14. If I finance the purchase of my home under a mortgage revenue bond (MRB) program, can I still claim the tax credit ?
15. Can I claim the tax credit even if I am not a U.S. citizen?
16. Is a tax credit the same as a tax deduction?
17. Can I claim this tax credit for a home I purchased in 2008?
18. If I am in the home buying process, can I access the tax credit money before I file my 2009 tax return?
19. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
20. If I purchase a home in early 2009, can I choose whether to use the 2008 or 2009 tax credit, depending on which amount is the largest?

1. Am I eligible for the tax credit?

First-time home buyers purchasing any type of home—new, resale or foreclosure—are eligible for the tax credit. A home purchase must occur on or after January 1, 2009 and before December 1, 2009, to qualify for the tax credit. The qualifying purchase date is the date when closing occurs and the title to the property transfers to the new home owner.

2. Do I qualify as a first-time home buyer?

A “first-time home buyer” is defined as a buyer who has not owned a principal residence during the three-year period prior to the purchase. The definition applies to the homeownership history of both the home buyer and his/her spouse, for married homebuyers.

For example, if you have not owned a home in the past three years but your spouse has owned a home in that time, neither you nor your spouse may qualify for the first-time home buyer tax credit. However, unmarried joint purchasers may assign the tax credit to whichever one qualifies as a first-time homebuyer (i.e. a parent purchases a home with a son or daughter). Also, a homebuyer may still qualify as a ‘first-time’ homebuyer if the property they own is a vacation home or rental property, and not used as a principal residence.

3. How will my tax credit be calculated?

The tax credit is calculated as 10 percent of the home’s purchase price up to a maximum of $8,000.

4. Is there an income limit for the tax credit?

Yes. Single taxpayers have an income limit of $75,000; the limit for married taxpayers filing a joint return is $150,000. For homebuyers with a modified adjusted gross income (MAGI) of more than $75,000, and filing a single tax return, and $150,000, for married homebuyers filing a joint tax return, the tax credit amount is reduced. As a final adjusted limit, the tax credit amount is reduced to zero for taxpayers with a MAGI of more than $95,000 (single) or $170,000 (married) and is proportionally reduced for taxpayers with MAGIs that fall between these amounts.

5. How do I know my “modified adjusted gross income”?

As defined by the IRS, to find the Modified adjusted gross income, or MAGI, a taxpayer must first determine their “adjusted gross income” or AGI. The AGI is the total income for a year minus certain deductions, not including itemized deductions from Schedule A or personal exemptions. On Forms 1040 and 1040A, the AGI is the last number on page 1 and first number on page 2 of these forms. For Form 1040-EZ, the AGI appears on line 4 (as of the 2007 form). Please note that the AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

The modified adjusted gross income (MAGI) is determined by adding certain amounts of foreign-earned income to the AGI . Please see IRS Form 5405 for more details.

6. If my modified adjusted gross income (MAGI) is above the limit, can I still qualify for the tax credit?

Possibly. Depending on your income, you may qualify for a partial credit of less than $8,000, even though your MAGI exceeds the qualifying limits.

7. What is an example of how the partial tax credit is determined?

Assume that a married couple has an MAGI of $160,000. The qualifying income limit for the tax credit is $150,000, therefore the couple is $10,000 over the limit. They would Divide $10,000 by $20,000 (the final adjusted limit range) which yields 0.5. They would then subtract 0.5 from 1.0, the result is 0.5. To determine the final first-time home buyer tax credit amount that is available to them, they would multiply $8,000 by 0.5. The result is $4,000.

Or, assume that a single home buyer has a modified adjusted gross income of $88,000. The home buyer’s income exceeds $75,000 by $13,000. They would Divide $13,000 by the adjusted limit range of $20,000 which yields 0.65. When they subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the home buyer is eligible for a partial tax credit of $2,800.

Please remember that you should always consult your tax advisor for information relating to your specific scenario, as these examples are intended to provide a general idea of how the tax credit might be applied in different instances.

8. How is this home buyer tax credit different from the tax credit that was enacted in July of 2008?

The most significant difference is that this tax credit does not have to be repaid. The previous “credit” was in effect an interest-free loan. This new tax incentive is a true tax credit. However, and this is very important, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Although certain exceptions apply.

9. How do I claim the tax credit? Is there a form or application to fill out?

Claiming the tax credit is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date.

10. Is the tax credit only for certain types of homes?

Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. Principal residence is defined identically to the method used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

11. What does it mean that the tax credit is “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 the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

12. If I have already filed to receive the $7,500 tax credit on my 2008 tax returns, for a home I purchased in early 2009, can I submit a claim for the new $8,000 tax credit instead?

Home buyers in this situation may file an amended 2008 tax return with a 1040X form. You should consult with a tax advisor to ensure you file this return properly.

13. Do I still qualify for the tax credit if I hired a contractor to construct a home on a lot that I already own?

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 after January 1, 2009 and before December 1, 2009.

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

14. If I finance the purchase of my home under a mortgage revenue bond (MRB) program, can I still claim the tax credit ?

Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

15. Can I claim the tax credit even if I am not a U.S. citizen?

Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

16. Is a tax credit the same as a tax deduction?

No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

17. Can I claim this tax credit for a home I purchased in 2008?

No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit. Please consult with your tax advisor for more information.

18. If I am in the home buying process, can I access the tax credit money before I file my 2009 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 buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS 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 qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community.

The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here.

19. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?

Yes. The law allows taxpayers to choose (”elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election 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.

Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.

20. If I purchase a home in early 2009, can I choose whether to use the 2008 or 2009 tax credit, depending on which amount is the largest?

Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

For more information on how the federal tax credit can help make your first home a reality, please call us at 706-215-1894. Complete a brief online application. Or send us an email at georgialoanpro@gmail.com, with your contact information and desired goal.

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