Homebuyer Tax Credit Extended and Liberalized
On November 5, 2009, the House of Representative passed H.R. 3548, the Worker, Homeownership, and Business Assistance Act of 2009″. The measure was OK’d by the Senate on November 4, so it is cleared for the President’s expected signature.
The current Homebuyer Tax Credit is available for qualifying first-time home purchases made after April 8, 2008 and before Dec. 1, 2009. For homes bought in 2009, the maximum credit was equal to the lesser of $8,000 (or $4,000 for a married individual filing separately) or 10% of the principal residence’s purchase price. Currently the credit phases out for individual taxpayers with modified adjusted gross income between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) in the year of purchase.
The new law extends the credit and liberalizes it by making it available to higher income taxpayers and to existing homeowners who are qualifying “long-term” residents and who buy another principal residence.
Under this new Act, the First Time Homebuyer Tax Credit is extended to apply to a principal residence purchased by the taxpayer before May 1, 2010. The credit also applies to the purchase of a principal residence before July 1, 2010 by any taxpayer who enters into a written binding contract before May 1, 2010. to close on the purchase of a principal residence before July 1, 2010.
The new Act makes the credit available to higher taxpayers. For purchases made after the enactment date, the credit phases out for individual taxpayers with modified adjusted gross income between $125,000 and $145,000 ($225,000 and $245,000 for joint filers) for the year of purchase.
The credit is now also available for existing homebuyers who are “long-time residents”. For purchases after the enactment date, any individual (and, if married, the individual’s spouse) who has maintained the same principal residence for any 5-consecutive year period during th 8-year period ending on the date of the purchase of the subsequent principal residence, is treated for purposes of this tax credit as a first-time homebuyer. The maximum allowable credit for such purposes is $6,500 ($3,250 for married individuals filing separately).
There is new limitation on the home price for this credit. For purchases after the enactment date, the credit cannot be claimed for buying a residence if its purchase price exceeds $800,000. Note that the credit is not phased out if the home price exceeds $800,000. For example, if the home price is $800,001 the credit is lost entirely.
There is no requirement that the existing principal residence be sold in order to qualify for the Homebuyer Tax Credit on the replacement residence. Thus, the replacement resident can be purchased to beat the new deadlines under the Act before the old home is sold. For that matter, the prior principal residence can be retained in the hope of achieving a better selling price later on.
There were several anti-abuse provisions that were put in place. The credit can’t be claimed unless the taxpayer is at least 18 years old, and it can’t be claimed if the taxpayer can be claimed as a dependent by another taxpayer for the year of purchase. The taxpayer claiming the credit must attach a properly executed copy of the settlement statement used to complete the purchase. Also, for purchases after the enactment date, property acquired from a person related to the person acquiring the property (or the spouse of the person acquiring the property, if married) is excluded from the definition of qualifying property.
As you can see, there are significant planning opportunities with the passage of this new Act. Most of the changes affecting the First Time Homebuyer Tax Credit are effective for purchases after the enactment date, which is expected soon. An individual or couple on the verge of closing on a home purchase who would benefit by one of the liberalized changes may want to delay the closing date until after enactment. However this should be done only if the benefit outweighs any adverse impacts resulting from delays, such as a loss of a mortgage commitment or a favorable interest rate.
Steve Trojan, CPA is owner of SMT & Associates, Inc, a Crystal Lake IL based tax and accounting firm, and Complete Payroll Inc, (www.completepayrollinc.com) a payroll processing firm.
