The New & Improved First-Time Homebuyer Tax Credit

& Repeat Homeowner Tax Credit for 2009 and 2010

• Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time homebuyers until April 30, 2010.

• Expands the credit to grant up to $6,500 credit to current homeowners purchasing a new or existing home between November 7, 2009 and April 30, 2010.

Who Qualifies for the Extended Credit?

• First-time homebuyers who purchase homes between November 7, 2009 and April 30, 2010.

• Current homeowners purchasing a home between November 7, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.

To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.

Which Properties Are Eligible?

The Extended Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, town homes, and co-ops.

How Much Is Available?

The maximum allowable credit for first-time homebuyers is $8,000.

The maximum allowable credit for current homeowners is $6,500.

How is a Buyer's Credit Amount Determined?

Each homebuyer’s tax credit is determined by two additional factors: the price of the home and the buyer’s income.

Price

Under the Extended Home Buyer Tax Credit, credit may only be awarded on homes purchased for $800,000 or less.

Buyer Income

Under the Extended Home Buyer Tax Credit, which is effective on November 7, 2009, single buyers with incomes up to $125,000 and married couples with incomes up to $225,000—may receive the maximum tax credit.

If the Buyer(s)' Income Exceeds These Limits, Can He/She Still get a Credit?

Yes, some buyers may still be eligible for the credit.

The credit decreases for buyers who earn between $125,000 and $145,000 for single buyers and between $225,000 and $245,000 for homebuyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Homebuyers earning more than the maximum qualifying income—over $145,000 for singles and over $245,000 for couples are not eligible for the credit.

Can a Buyer Still Qualify If He/She Closes After April 30, 2010?

Under the Extended Home Buyer Tax Credit, as long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.

Will the Tax Credit Need to Be Repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full amount credit will be recouped on the sale.

Q. What is the definition of a first-time homebuyer?

A. The law defines a first-time homebuyer as a buyer who has not owned a principal residence during the three-year period prior to purchase. For married taxpayers, the law tests the home ownership history of the homebuyer and his/her spouse.

For example, if you have not owned a home in the past three years, but your spouse has owned a principal residence during the same period, neither of you qualifies as a first-time homeowner.

Q. How is the amount of the tax credit determined?

A. The tax credit is equal to ten per cent of the home’s purchase price up to a maximum of $8,000.

Q. Are there any income limits for claiming the tax credit?

A. Yes. The income limit for single tax payers is $125,000; the limit is $225,000 for married tax payers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $125,000 for single tax payers and $2250,000 for married tax payers filing a joint return.

The phase-out range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with a MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers between these amounts.

Q. How do I claim the tax credit? Do I need to complete a form or application?

A. Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return.

Q. What types of homes qualify for the tax credit?

A. Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.

Q. Is the tax credit refundable?

A. Yes. This means the homebuyer credit can be claimed even if the taxpayer has little or no federal tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion (or even all) of the amount of the refundable tax credit.

Q. Is a tax credit the same as a tax deduction?

A. No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax credit is subtracted from the amount of income that is taxed. Using the same example as above, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s liability would be reduced by $1,200 (15 per cent of $8,000), or lowered $8,000 to $6,800.

Q. Is there any way for a homebuyer to access the money allocable to the credit sooner than waiting to file their 2010 tax return?

A. Yes. Prospective homebuyers 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 be applied to the down payment.

Q. The Secretary of Housing and Urban Development has announced that HUD will allow “monetization” of the tax credit. What does that mean?

A. It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 209 income taxes to receive a refund. These funds may be used for certain down payment and closing cost expenses.

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