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THE EXTENSION AND EXPANSION OF THE HOMEBUYER TAX CREDIT

The Worker, Homeownership and Business Assistance Act of 2009 was signed into law on November 6, 2009.  This extends and expands the previously passed first-time homeowners tax credit.  There are three major categories to review.

Extension:

  • The first-time homeowner tax credit is now available for those eligible taxpayers who enter a binding home buying contract for a principal residence on or before April 30, 2010 (previous credit was to expire on November 30, 2009).
  • The taxpayer must close on the purchase by June 30, 2010.
  • The amount of the credit remains at 10% of the purchase price up to $8,000.
  • This credit must be taken on either their 2009 or 2010 tax return using form 5405.
  • The tax credit remains fully refundable, meaning the credit will be paid out to the homeowner even if their tax obligation is less than the amount of the credit.
  • The homeowner does not have to repay this credit unless the home ceases to be their principal residence within 36 months of closing.
  • If the home has been purchased from a close relative including spouse, parent, grandparent, child, or grandchild, the tax payer is not eligible for the credit.  Also, if the tax payer has owned a home any time during the three years prior to this purchase, they are not eligible for the credit.

Expansion:

  • The new law authorizes a tax credit for those homeowners who have owned their principal residence for at least five consecutive years (out of an 8 year period) and purchased a new principal residence.
  • The credit has a maximum of $6,500.

Raising the Income Limitation:

  • The new income provision only applies to those people who have purchased homes after November 6, 2009.
  • The credit phases out for individuals with a modified adjusted gross income between $125,000 and $145,000.
  • For joint filers the credit phases out with a modified adjusted gross income between $225,000 and $245,000.
  • For those purchasing a home prior to November 6, 2009 the original phase out schedule applies.  Individuals were phased out between $75,000 and $95,000.  Joint filers were phased out between $150,000 and $170,000.

There are some restrictions that apply to homes purchased after November 6, 2009:

  • Purchasers must attach a properly executed settlement statement to their return.
  • No credit is available if the purchase price of the home exceeds $800,000.
  • The purchaser must be at least 18 years of age on the date of the purchase.  For a married couple, only one spouse needs to be 18.
  • A dependent is not eligible for the credit.
  • The new law gives the IRS broader authority to deny first-time homebuyer credit claims, without having to first audit the taxpayer’s return.

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