The First-Time Homebuyer Tax Credit has been expanded and extended! This new version of the tax credit is not just a first-time homebuyer tax credit, but a "Homebuyer Tax Credit". Many more people will qualify for this credit. President Obama signed the Homebuyer Tax Credit into law on Friday, November 6, after overwhelming votes for it in Congress. The credit took effect yesterday! To be eligible, a purchase contract must be signed by April 30, 2010, and close on or before June 30, 2010, so there is a short window of opportunity.
Four Things REALTORS® and Consumers Need to Know About the New 2009 - 2010 Homebuyer Tax Credit Extension - EFFECTIVE IMMEDIATELY!
*NOTE: This document is for informational purposes and should not be construed as tax or legal advice. For specific advice on their own tax situation consumers should always consult a qualified tax professional. 1. Who are eligible homebuyers? Has eligibility been expanded to include existing homeowners?
Eligible homebuyers now come in 2 categories:
1. 1st-Time Homebuyers. Any person who has not owned a principal residence in the past 3 years may qualify as a 1st-time homebuyer, subject to income restrictions (greatly increased, see #2, below).
2. Long-Time Residents of Same Principal Residence. Someone who has owned a home and occupied it as the principal residence for any consecutive 5-year period during the last 8 years may also be eligible for a credit, also subject to the new income ceilings. This does include current homeowners, so long as the home was both owned and occupied by the taxpayer for at least 5 consecutive years. 2. What are the new maximum income levels?
1. 1st-Time Homebuyers. The Modified Adjusted Gross Income limit is now $125k for singles, $225k for couples.
2. Long-Time Residents of Same Principal Residence. Same: $125k for singles, $225k for couples.
"Modified Adjusted Gross Income" (MAGI) is defined by the IRS. To find it, a taxpayer must first determine "Adjusted Gross Income" (AGI). AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains. To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs. Singles cannot make more than $125,000 in MAGI, and married couples cannot make not more $225,000 in order to get the maximum credit (see #3, below). Partial credit is available for those with MAGI between $125k to $145k ($225k-$245k for joint filers).
3. Has the credit amount been increased?
No. But the maximum credit amount is different depending on whether the taxpayer is a 1st-Time or Non-1st-Time Homebuyer.
1. 1st-Time Homebuyers. Full credit is still $8,000* ($4,000 if married filing separately).
2. Long-Time Residents of Same Principal Residence. Full credit is $6,500* ($3,250 if married filing separately).
You will get this money in the form of a Federal Tax Refund, just as always. Also, though it is still a true credit, as opposed to a loan (recall the 2008 version), recapture or repayment would still be required if you sold your home within 36 months of purchase.
* $8,000/$6,500 or 10% of purchase price, whichever is less. The 10% figure applies only when the purchase price is less than $80,000/$65,000.
4. What housing qualifies as a Principal Residence purchase?
The date of purchase has been extended to July 1, 2010, so long as a binding P&S agreement was executed (signed) by April 30, 2010.
As before, single family homes, condos, townhouses, and co-ops qualify so long as they are used as the taxpayer's principal residence. Homes purchased last year do not qualify for this program. Also, sales between immediate family members are ineligible. It is also important to note that th purchase price of the home cannot exceed $800,000. Also, sales between immediate family members are ineligible.
This Q&A is intended to provide a quick overview. There are numerous other provisions in the new credit, and homebuyers should understand them clearly before they make any decision regarding their eligibility.
Excerpted from the Massachusetts Association of Realtors website.