First-Time Homebuyer Credit
Before you dismiss this post out-of-hand because you have owned a home before, you should consider it if you bought a new home in 2008, or you may buy one in 2009. The definition of “first-time homebuyer” is important. You may qualify for the credit if you have not had an ownership interest in a main home (sometimes referred to a “principal residence”) within the three-year period ending on the date of purchase. If you are married, both you and your spouse must meet this 3-year ownership test. If you construct your main home, you are treated as having purchased it on the date you first occupy it. Your main home is the one you live in most of the time. It can be a house, houseboat, house trailer, cooperative apartment, condominium, or other type of residence.
There are certain other restrictions to claiming the credit (such as obtaining it by gift or inheritance, or buying it from your brother-in-law), so don’t run out and by a new home without checking with your tax professional to ensure you meet all of the requirements. If two or more unmarried individuals buy a main home, they can allocate the credit among the individual owners using any reasonable method. A reasonable method is any method that does not allocate all or a part of the credit to a co-owner who is not eligible to claim that part of the credit.
The Internal Revenue Service announced yesterday (February 25) that taxpayers who qualify for the first-time homebuyer credit and purchase a home between January 1 and November 30, 2009 (not December 31, why I don’t know) have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year. Presumably, this includes 2008 returns timely extended until October 15, although the announcement did not say, and I cannot give reliable tax advice based on presumptions. The announcement also did not address whether this special option could be claimed on an amended return (if you have already filed your 2008 return and purchase a home in 2009 for example, or you file your extended return by October 15, and subsequently purchase a home before December 1). I expect the Service to issue additional guidance in the coming weeks.
“For first-time homebuyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit,” said IRS Commissioner Doug Shulman. “This important change gives qualifying homebuyers cash they do not have to pay back.”
If you meet the definition of a first-time homebuyer, the amount of the credit and whether you have to repay any or all of it in the future depend on the year (2008 or 2009) in which you purchase the new home. These are discussed below. For either year in which you claim the credit, however, the amount begins to phase out if your adjusted gross income (AGI) is more than $75,000 ($150,000 for joint filers). The credit is completely phased out (you get no benefit) if your AGI exceeds $95,000 ($170,000 for joint filers).
For homes purchased after April 8, 2008 and before January 1, 2009:
- The amount of the credit is the lesser of 10% of the purchase price of the new home or $7,500 ($3,750 for married taxpayers filing separately).
- The credit must be repaid in 15 equal, annual installments ($500 per year as an addition to your tax liability) beginning on your 2010 tax return. If your home ceases to be your main home before the 15-year period is up, you must include all remaining annual installments as additional tax on the return for the tax year that happens. There are limitations and exceptions to this repayment requirement.
- If you have the audacity to die during the 15-year repayment period, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
For homes purchased after December 31, 2008 and before December 1, 2009:
- The amount of the credit is the lesser of 10% of the purchase price of the new home or $8,000 ($4,000 for married taxpayers filing separately).
- You must repay the credit only if the home ceases to be your main home within the 36-month period beginning on the purchase date. Again, there are limitations and exceptions to this repayment requirement.
- If you die, repayment of the credit is not required. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the credit that may have to be recaptured.
In these taxing times, we’ll take whatever credits we can get! If you have questions about the first-time homebuyer credit for either 2008 or 2009, please email or call me.
Ronnie
Copyright 2009 Ronnie C. McClure, PhD, CPA