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Archive for December, 2009

Over the past few weeks I’ve received several questions about the Move-Up tax credit so thought I’d send this follow-up to friends & clients.  It’s breaks down the two tax credits (Move Up & First Time Home Buyers) in easy-to-read bullet points. 

As of November 13, the following is a summary from the Counsel for the IRS on the First Time & Move Up Buyer tax credits.  Be sure to check out the Q&A at the very bottom of the page.  The word “purchased” is defined by the IRS as the actual closing/recordation date.

$8,000 First-time Home Buyer Tax Credit at a Glance

  • The $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
  • The tax credit does not have to be repaid unless home is vacated as primary residence in the first 3 years following purchase.
  • The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
  • The tax credit applies only to homes priced at $800,000 or less.
  • The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
  • For homes closed on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.
  • For homes closing after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.
  • Cannot purchase from a relative you are descended from such as a grandparent, parent but supposedly okay sibling to sibling. You cannot transfer property from spouse to spouse, purchase from a company you have significant ownership in.

The $6,500 Move-Up / Repeat Home Buyer Tax Credit at a Glance

  • To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years from time of closing of new home. Previous home can have been converted to rental or second home, sold, or otherwise disposed of as long as they can provide documentation that new home is primary residence.
  • The tax credit does not have to be repaid unless they vacate it as a primary residence during the 3 years following purchase.
  • The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.
  • The tax credit applies only to homes priced at $800,000 or less.
  • The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies provided it is completed by June 30, 2010.
  • Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.
  • It does not seem there is any language about it being a “move-up” property, just using it as terminology to define those who’ve owned homes previously.
  • Because this is a new provision, the IRS is still working out some of the bugs and recommends you visit the website often.

 Also, as before, if a buyer purchases in 2010, they can apply for the credit on their 2009 tax return. 

For more information, please see the IRS publications at http://www.irs.gov/newsroom/article/0,,id=204335,00.html

  Below are some great scenarios answered by the IRS: 

First-Time Homebuyer Credit: Scenarios

 
S1. If a single person (Taxpayer A) qualifies as a first-time homebuyer at the time he/she purchases a home with someone (Taxpayer B) that is not a first-time homebuyer and then later that year they marry each other, is the credit still allowed?

A. Eligibility for the first-time homebuyer credit is determined on the date of purchase. If Taxpayer A, a first-time homebuyer, buys a house and then later that year marries Taxpayer B, not a first-time homebuyer, the credit is allowable to Taxpayer A. Taxpayer A may take the maximum credit.

S2. Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Can Taxpayer A claim the credit and, if so, how much? 

A. Yes. Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A’s primary residence.

S3. A taxpayer owned her principal residence. Several years ago, she decided to relocate to a rented apartment, but did not sell the former residence. Instead, she rented it out to tenants. Now the taxpayer plans to buy another house and make it her new principal residence. Does she qualify for the first-time homebuyer credit?

A. A taxpayer who owned rental property within the past three years is still eligible for the credit. The taxpayer cannot have owned and used a home as his or her principal residence within the last three years.

S4. If husband and wife wanted to sell the home that the wife owned when they got married, and the husband had not owned a home within the past three years, could he qualify as a first-time homebuyer for the credit even though the wife would not qualify?

A. No. The purchase date determines whether a taxpayer is a first-time homebuyer. Since the wife had ownership interest in a principal residence within the prior three years, neither taxpayer may take the first-time homebuyer credit. Section 36(c)(1) of the Internal Revenue Code requires that the taxpayer and the taxpayer’s spouse not have an ownership interest in a principal residence within the prior three years from the date of purchase. The husband may not take the credit even if he filed on a separate return.

S5. Taxpayer purchased a home on April 24, 2008, while she was separated from her husband. Later in the year, they reconciled and were living together at the end of 2008. She has not owned a home since 2004 but he owned one which he sold in 2006. They remained married the entire time. Is the taxpayer eligible for the first-time homebuyer credit?

A. No. The purchase date determines whether a taxpayer is a first-time homebuyer. Since the husband had ownership interest in a principal residence within the prior three years, and the taxpayers were legally married, neither taxpayer may take the first-time homebuyer credit. Section 36(c)(1) requires that the taxpayer and the taxpayer’s spouse not have an ownership interest in a principal residence within the prior three years from the date of purchase. While individuals do not have to be married to get the credit, marriage (and legal separation) imputes ownership of a previous home upon the other spouse. The wife may not take the credit even if she filed on a separate return.

S6. I have been estranged from my spouse for over three years and file married filing separate. I don’t know if my spouse has owned a main home in the last three years, but I have not. If I buy a house in 2009 that otherwise qualifies for the first-time homebuyer credit, can I claim the credit?

A. Section 36(c)(1) requires that the taxpayer and the taxpayer’s spouse not have an ownership interest in a principal residence within the three years prior to the date of purchase. While individuals do not have to be married to get the credit, marriage (and legal separation) imputes ownership of a previous home upon the other spouse. If your spouse has not owned a main home in the last three years, then you may claim the credit.

S7. I am separated from my spouse and considered unmarried, and qualify for the unmarried head of household filing status. My spouse has owned a main home in the last three years, but I have not. If I buy a home on May 1, 2009, that otherwise qualifies, can I claim the first-time homebuyer credit?

A. No. Section 36(c)(1) requires that the taxpayer and the taxpayer’s spouse not have an ownership interest in a principal residence within the three years prior to the date of purchase. While individuals do not have to be married to get the credit, marriage (and legal separation) imputes ownership of a previous home upon the other spouse. The taxpayer may not take the credit even if filed on a separate return.

S8. A qualifying taxpayer bought a home in August 2008 that needed a lot of work before occupying. They finished the renovations and moved in the home in January 2009. Can they claim the $8,000, since they did not occupy the home until 2009?

A. No. Taxpayers who purchase an existing home and renovate the property before moving in are eligible for the first-time homebuyer credit based on the date of purchase, not the date of occupancy.    

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