Now that the $8000 First Time Homebuyer Tax Credit has been extended, qualified home buyers have until April 30, 2010 to enter into a sales contract and until June 30, 2010 to close on their purchase.
The tax credit applies to purchases made between November 7, 2009 and April 30, 2010 with a closing deadline of June 30, 2010. The tax credit is fully refundable, which means that if the amount of the credit is greater than the amount of income tax owed by the homebuyer, the difference will be paid to the homebuyer as a tax refund when a tax return is filed.
The following information about the Tax Credit has been provided by the National Association of Homebuilders:
•The $8,000 tax credit is available for first-time home buyers only. A tax credit of up to $6,500 is available to qualifying repeat buyers, as described in a separate section.
•The law defines a first-time home buyer as a buyer who has not owned a home during the past three years. For married taxpayers, both spouses must meet first-time buyer criteria to be eligible.
•Dependents of a taxpayer are ineligible to act a purchasers for the credit.
•Home buyers who file as single or head-of-household taxpayers can claim the full credit if their adjusted gross income (AGI) is less than $125,000.
•For married couples filing a joint return, the income limit doubles to $225,000.
•Taxpayers earning up to $20,000 above the AGI limits may be eligible for a partial tax credit.
•First-time home buyers would receive a $8,000 tax credit for the purchase of any home that was contracted to purchase between November 7, 2009 and April 30, 2010 and closed by June 30,2010. A written, binding contract is required to meet the contract deadline.
•A refundable credit means that if you pay less than $8,000 in federal income taxes, then the government will write you a check for the difference.
•For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $3,000 payment from the government.
•If you are due to receive a $1,000 tax refund from the government, your refund would grow to $9,000 ($1,000 plus $8,000 from the home buyer tax credit).
•Buyers can take the tax credit in their 2009 tax return.
•All homes, whether single-family, townhomes or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a home in the prior three years. This also includes newly-constructed homes.
•A maximum sales price of $800,000 applies.
•The tax credit does not have a payback provision. However, if you sell the home within three years, the entire amount of the credit is recaptured on the sale.
•Kentucky Housing loans now allow borrowers who plan to take the tax credit to get an additional loan of up to $4,500 to be used toward the downpayment and/or closing costs, repayable when the tax credit is received. Read more . . .
•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.
Getting the Credit Funds Quickly
•The law allows taxpayers to choose (“elect”) to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year’s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year 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 prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.
For more information, go to www.federalhousingtaxcredit.com.
INFORMATION PROVIDED BY NATIONAL ASSOCIATION OF HOMEBUILDERS. CONSULT YOUR TAX PROFESSIONAL TO DETERMINE HOW THE TAX CREDIT MAY APPLY TO YOUR PERSONAL TAX CIRCUMSTANCES.