First-Time Homebuyer Tax Credit
Anthony T. Bowser
First-Time Homebuyer Tax Credit
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act (ARRA). In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale. For 2009, Congress has increased the credit to $8000 and made several significant revisions. This revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.
Amount of Credit
The previous $7500 repayable credit is increased to $8000 and the repayment feature is eliminated for 2009 purchasers. The amount of the credit is the lesser of $8000 or 10% of the purchase price. It is available for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009.
Eligibility
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had any ownership interest in a primary residence in the three years previous to the day of the 2009 purchase.
Refundable Credit
This tax credit is a “refundable” credit. Thus, if the eligible purchaser’s total tax liability was $6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference between the $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000)
Income Restrictions
For single taxpayers, the $8000 credit phases out between $75,000 and $95,000 AGI. The phase out income limits for joint filers are between $150,000 and $170,000.
Elimination of Financing Restrictions
In the ARRA, Congress eliminated the financing restriction that applied in 2008. In 2008, purchasers were ineligible for the $7500 credit if the financing was obtained by means of mortgage revenue bonds. Now, mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser.
Effect on Taxpayers Previously Taking $7500 Repayable Credit
The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed the repayable $7500 (2008) credit will still be required to repay it over 15 years, starting with their 2010 tax return.
If a taxpayer purchased between January 1, 2009 and the enactment date (Feb. 17, 2009) and has already claimed the repayable $7500 credit, that taxpayer may substitute the new $8000 non-repayable credit by filing an amended return.
How to Apply for the Credit
Form 5405, which can be found at www.irs.gov.
When can Purchasers take the Credit?
Eligible homebuyers who make their purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15, 2009. They actually have three filing options:
- If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on the 2008 return due on April 15.
- They can extend their 2008 income-tax filing until as late as October 15, 2009.
- If they have filed their 2008 return before they purchase the home, they may file an amended 2008 tax return on Form 1040X.
Recapture of ARRA Credit
The one situation that does require a recapture payment back to the government is where the taxpayer sells the property within 3 years of the date of purchase. A few limited or complete exceptions to the recapture rule apply for circumstances such as death, divorce, natural disaster or involuntary takings. This same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This provision is designed as an anti-flipping rule.
New Construction
Purchasers of newly constructed homes are eligible, so long as they actually occupy the home before December 1, 2009.
