Tax credit overview
Posted by Jolenta Averill on Monday, November 9th, 2009 at 2:58pm.
On November 6, 2009, President Obama signed a bill to extend the tax credit for first-time homebuyers (FTHBs) through June 30, 2010. The bill also opens up opportunities for others who are not buying a home for the first time. In response to the many questions I've been getting, I've put together the tax credit overview below so you can bring the new tax credit into focus and learn what may mean to you.
Who Gets What?First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a homewithin the last three years) may be eligible for the tax credit. The credit forFTHBs is 10% of the purchase price of the home, with a maximum available creditof $8,000.
Single taxpayers and married couples filing a joint return may qualify for thefull tax credit amount.
Current Owners: The taxcredit program now gives those who already own a residence some additionalreasons to move to a new home. This incentive comes in the form of a tax creditof up to $6,500 for qualified purchasers who have owned and occupied a primaryresidence for a period of five consecutive years during the last eight years.
Single taxpayers and married couples filing a joint return may qualify for thefull tax credit amount.
What are the New Deadlines?
In order to qualify for the credit, all contracts need to be in effect no laterthan April 30, 2010 and close no later than June 30, 2010.
What are the Income Caps?
The amount of income someone can earn and qualify for the full amount of thecredit has been increased.
Single tax filers who earn up to $125,000 are eligible for the total creditamount. Those who earn more than this cap can receive a partial credit.However, single filers who earn $145,000 and above are ineligible
Joint filers who earn up to $225,000 are eligible for the total credit amount.Those who earn more than this cap can receive a partial credit. However, jointfilers who earn $245,000 and above are ineligible.
What is the Maximum Purchase Price?
Qualifying buyers may purchase a property with a maximum sale price of$800,000.
What is a tax credit?
A tax credit is a direct reduction in tax liability owed by an individual tothe Internal Revenue Service (IRS). In the event no taxes are owed, the IRSwill issue a check for the amount of the tax credit an individual is owed.Unlike the tax credit that existed in 2008, this credit does not requirerepayment unless the home, at any time in the first 36 months of ownership, isno longer an individual’s primary residence.
How Much are First-Time Homebuyers (FTHB) Eligible to Receive?
An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or10% of the purchase price for a home. If the amount of the home purchased is$75,000, the maximum amount the credit can be is $7,500. If the amount of thehome purchased is $100,000, the amount of the credit may not exceed $8,000.
Who is Eligible for FTHB Tax Credit?
Anyone who has not owned a primary residence in the previous 36 months, priorto closing and the transfer of title, is eligible.
This applies both to single taxpayers and married couples. In the case wherethere is a married couple, if either spouse has owned a primary residence inthe last 36 months, neither would qualify. In the case where an individual hasowned property that has not been a primary residence, such as a second home orinvestment property, that individual would be eligible.
As mentioned above, the tax credit has been expanded so that existinghomeowners who have owned and occupied a primary residence for a period of fiveconsecutive years during the last eight years are now eligible for a tax creditof up to $6,500.
How Much are Current Home Owners Eligible to Receive?
The tax credit program includes a tax credit of up to $6,500 for qualifiedpurchasers who have owned and occupied a primary residence for a period of fiveconsecutive years during the last eight years.
Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?
No. The IRS has recently begun prosecuting people who have claimed creditswhere a purchase had not taken place.
Can a Taxpayer Claim a Credit if the Property is Purchased from a Sellerwith Seller Financing and the Seller Retains Title to the Property?
Yes. In situations where the buyer purchases the property, even though theseller retains legal title, the taxpayer may file for the credit. Some examplesof this would include a land contract or a contract for deed.
According to the IRS, factors that would demonstrate the ownership of theproperty would include:
1. Right of possession,
2. Right to obtain legal title upon full payment of the purchase price,
3. Right to construct improvements,
4. Obligation to pay property taxes,
5. Risk of loss,
6. Responsibility to insure the property, and
7. Duty to maintain the property.
Are There Other Restrictions to Taking the FTHB Credit?
Yes. According to the IRS, if any of the following describe a homebuyer’ssituation, a credit would not be due:
They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
They do not use the home as their principal residence.
They sell their home before the end of the year.
They are a non-resident alien.
They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.
Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligiblefor the Credit?
Yes. As long as the person they buy the home from is not a direct bloodrelative, the purchase would be allowed.
If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, WillTheir Child Still be Eligible for the Credit?
Yes, provided that the child meets the other requirements for the tax credit.
For more information about buying property in the Madison area or about listing your Madison area home for sale, please visit the links below or call Lake & City Homes broker | owner Jolenta Averill at 608.230.5553 today!
Serving Greater Madison WI
At Lake & City Homes we combine traditional real estate marketing with cutting-edge Internet technologies to achieve outstanding results for our clients. Call us today to find out how to get the results you deserve.
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Share4 Responses to "Tax credit overview"
Great way to explain the new tax credit! It will be more interesting to know how many buyers the $6500 credit brings to the market..Good luck to you in 2010
Posted on Wednesday, November 18th, 2009 at 12:24 AM.
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Posted on Tuesday, March 9th, 2010 at 4:25 PM.
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