Friday, February 12, 2010

Updates for the Homebuyers tax credit

There were major changes on November 6, 2009 to the homebuyer tax credit after passage of the federal Worker, Homeownership, and Business Assistance Act of 2009. This new law extended the homebuyer tax credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit. In particular, the first-time home buyer tax credit for $8,000 (or $4,000 if married and filing separately) maximum was extended to April 30, 2010. In addition, the law provides a homebuyer tax credit of $6,500 ($3,250 if married and filing separately) maximum for current homeowners who had used the home sold or being sold as a principal residence consecutively for five of the previous eight years. For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.
A new version of IRS Form 5405 , First-Time Homebuyer Credit, is available (revised December 2009). A taxpayer who purchases a home after Nov. 6, 2009 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return. A taxpayer who purchased a home on or before Nov. 6, 2009 and chooses to claim the credit on an original or amended 2008 return may use the old version of Form 5405.
The new law also provides a "binding contract" provision which, in essence, states that so long as a written binding contract to purchase is in effect on April 30, 2010, the buyer has until July 1, 2010 to close escrow.
In addition, the law increased the income limits in order for the buyer to be eligible for the tax credit. The increased modified adjusted gross income (MAGI) limits are effective as of November 7, 2009: $125,000 for a single person, $225,000 for a married couple. For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000 ($150,000 for joint filers). Those with MAGI between $75,000 and $95,000 (or $150,000 and $170,000 for joint filers) are eligible for a reduced credit. Those with higher incomes do not qualify.
The law includes anti-fraud provisions that require the purchaser to attach certain documentation to the tax return. The new documentation requirements mean that taxpayers claiming the credit cannot file electronically and must file paper returns.
Finally, several new restrictions on purchases that occur after Nov. 6, 2009 go into effect with the new law:
. Dependents are not eligible to claim the credit.
. No credit is available if the purchase price of a home is more than $800,000.
. A purchaser must be at least 18 years of age on the date of purchase.