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Understanding the First Time Homebuyer Tax Credit

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In "A Complete Guide to Understanding the First Time Homebuyer Tax Credit reviews the $7,500 tax credit as well as the revisions signed into law on February 17th as part of H.R.1 - The American …

In "A Complete Guide to Understanding the First Time Homebuyer Tax Credit reviews the $7,500 tax credit as well as the revisions signed into law on February 17th as part of H.R.1 - The American Recovery and Reinvestment Act of 2009

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  • 1. A Complete Guide to Qualifying for and Understanding the First Time Homebuyer Tax Credit H.R. 3221 – Economic Stimulus and Housing Recovery Act of 2008 - $7,500 H.R. 1 – American Recovery and Reinvestment Act of 2009 - $8,000 Revised
  • 2. The $7,500 First Time Homebuyer Tax Credit
    • The original tax credit was introduced with H.R. 3221 - The Economic Stimulus and Housing Recovery Act of 2008
    • 10% of the Purchase Price up to $7,500 for single and joint taxpayers
    • Married filing separate may claim $3,750
    • Purchased between April 8 th 2008 and before July 1 st 2009
    • Interest Free loan paid back over 15 years beginning 2 years after credit is claimed
    • Purchase loans using by Mortgage Revenue Bonds are ineligible for credit - CalHFA
  • 3. The $8,000 First Time Homebuyer Tax Credit
    • H.R.1-The American Recovery and Reinvestment Act revises the First Time Homebuyer Tax Credit
    • 10% of the Purchase Price up to $8,000 for single and joint taxpayers
    • Married filing separate may claim $4,000
    • Purchased after December 31 st 2009 and before December 1 st 2009
    • Not paid back – No recapture if home is lived in as main home for at least 3 years
    • Purchase loans using Mortgage Revenue Bonds are eligible for Homebuyer Credit - CalHFA
  • 4. IRS Guidelines - Qualifying for the Tax Credit
    • Occupancy and Property Type
    • Must purchase a “main home” – Primary residence
      • Main home - Your main home is the one you live in most of the time. It can be a house, houseboat, housetrailer, cooperative apartment, condominium, or other type of residence
      • New construction – Purchase date treated as first date you occupy home
    • Must be a First Time Homebuyer
      • Can not have owned another primary home within 3 years of the closing date of new home
      • May own other homes or properties as long as you have never lived in it as your main home
  • 5. IRS Guidelines - Qualifying for the Tax Credit
    • Maximum income limits – Phase out maximums
    • Married filing joint - $150,000 – Eligible for full credit
      • Phase out begins when MAGI exceeds limit – reduce credit
        • Phase out at $195,000
    • Single filing status - $75,000 – Eligible for full credit
      • Phase out begins when MAGI exceeds limit – reduce credit
        • Phase out at $95,000
    • Occupying home as Joint Tenants
      • If you purchase home under joint tenancy and down payment and ownership are not equal
        • Tax credit will be claimed in proportion to ownership in residence
  • 6. IRS Guidelines - Qualifying for the Tax Credit
    • You Cannot Claim Tax Credit if any of these apply
    • Your modified adjusted gross income (MAGI) exceeds phase out income maximum limits
    • You are a nonresident alien
    • Your home is located outside the United States
    • You sell the home, or it ceases to be your main home before the end of 2009
      • Recapture applicable if you sell within 3 years of purchase
    • You acquired your home through gift or inheritance
    • You acquired your home from a related person:
      • Spouse, ancestors (parents, grandparents,etc.)
      • Lineal descendants (children, grandchildren, etc.)
      • A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation.
      • A partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest
  • 7. IRS Guidelines - Qualifying for the Tax Credit
    • Claiming the First Time Homebuyer Credit
    • IRS Form 5405 – Attached to 1040
    • A main home purchased in 2008 is only eligible for $7,500 tax credit and may be claimed on 2008 return
    • A main home purchased in 2009 is eligible for $8,000 tax credit and may be claimed on 2008 (or amended 2008) or 2009 tax return
    • CANNOT claim the credit prior to purchase of home
      • 5404 required address of home qualifying for the credit
      • 5404 requires date home acquired
      • Lying on tax return is a federal offense – not worth it
    • You may adjust your W4 withholdings in anticipation of claiming credit on 2009 tax return