Lexington Real Estate

A new First Time Homebuyer Tax Credit became law on February 17th, and the credit amount has been increased to $8,000. In order to obtain the credit, qualified buyers must close on the new home by December 1st. Unlike the previous credit, which functioned as an interest-free loan, there are no payback provisions for this credit, as long as the homebuyer owns the home for at least three years.

The tax credit applies to purchases made between January 1, 2009 and December 1, 2009, and is available to qualifying first time home buyers. Unlike the previous tax credit, this one does not have to be repaid, except in instances where the home is sold within three years. 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.

Click here to download a printable brochure about the credit.
The following information about the Tax Credit has been provided by the National Association of Homebuilders:

Who is Eligible
•The $8,000 tax credit is available for first-time home buyers only.
•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.

Income Limits
•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 $75,000.
•For married couples filing a joint return, the income limit doubles to $150,000.
•Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit.
•Married couples who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit.
•The credit is not available for single taxpayers whose AGI is greater than $95,000 and married couples with an AGI that exceeds $170,000.
Effective Dates for the Tax Credit
•First-time home buyers would receive a $8,000 tax credit for the purchase of any home on or after January 1, 2009, and before December 1, 2009. To qualify, you must actually close on the sale of the home during this period.
Tax Credit is Refundable
•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.

Types of Homes that Qualify for the Tax Credit
•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.
No Payback Provisions
•The tax credit does not have a payback provision, unlike the previous $7,500 tax credit. However, if you sell the home within three years, the entire amount of the credit is recaptured on the sale.

Using the Credit as a Downpayment
•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
• Homebuyers who are qualified for the tax credit and buy a home in 2009 can apply the tax credit against their 2008 tax return. The law allows taxpayers to choose (”elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (Maximum Adjusted Gross Income) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 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 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.

This entry was posted on Tuesday, February 10th, 2009 at 10:58 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.