Frequently Asked Questions About the Move-Up/Repeat Home Buyer Tax Credit
The Worker, Homeownership, and Business Assistance Act of 2009 has established a tax credit of up to $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).
The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.
Who is eligible to claim the $6,500 tax credit? Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.
What is the definition of a move-up or repeat home buyer? The law defines a tax credit qualified move-up home buyer ("long-time resident") as a home owner who has owned and resided in a home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.
How is the amount of the tax credit determined? The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.
Are there any income limits for claiming the tax credit? Yes. The income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) above those limits. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
What is "modified adjusted gross income"? Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.
To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details.
If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit? Possibly. It depends on your income. Partial credits of less than $6,500 are available for some taxpayers whose MAGI exceeds the phaseout limits.
Can you give me an example of how the partial tax credit is determined? Just as an example, assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phaseout range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $6,500 by 0.5. The result is $3,250.
Here's another example: assume that an individual home buyer has a modified adjusted gross income of $138,000. The buyer's income exceeds $125,000 by $13,000. Dividing $13,000 by the phaseout range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $6,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,275.
Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.
How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008? How is this different than the rules established in early 2009? The previous tax credits applied only to first-time home buyers and were for different amounts of money.
How do I claim the tax credit? Do I need to complete a form or application? Are there documentation requirements? You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).
No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and repeat home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.
What types of homes will qualify for the tax credit? Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.
It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse's family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.
I read that the tax credit is "refundable." What does that mean? The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income 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.
For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $6,500 home buyer tax credit. As a result, the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000 owed).
Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit? Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April 30, 2010).
In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date. Be sure to check with a tax advisor in cases where a HUD-1 form is not used at settlement to be sure you have sufficient documentation to attach to IRS Form 5405.
Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program? Yes. The tax credit can be combined with an MRB home buyer program.
I am not a U.S. citizen. Can I claim the tax credit? Perhaps. Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. The IRS provides a definition of "nonresident alien" in IRS Publication 519.
Is a tax credit the same as a tax deduction? No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $6,500 in income taxes and who receives an $6,500 tax credit would owe nothing to the IRS.
A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer's tax liability would be reduced by $975 (15 percent of $6,500), or lowered from $6,500 to $5,525.
Is there a way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return? Yes. Prospective home buyers who believe they qualify for the tax credit 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 then be applied to the downpayment.
Buyers should adjust the withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.
In addition, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. As a result, some state housing finance agencies have introduced programs that provide short-term second mortgage loans that may be used to fund a downpayment. Prospective home buyers should check with their state housing finance agency to see if such a program is available in their community. To date, 18 state agencies have announced tax credit assistance programs, and more are expected to follow suit. The National Council of State Housing Agencies (NCSHA) has compiled a list of such programs, which can be found here.
HUD allows "monetization" of the tax credit. What does that mean? 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 2009 or 2010 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.
Under the guidelines announced by HUD, non-profits and FHA-approved lenders are allowed to give home buyers short-term loans. The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.
Housing finance agencies and other government entities may also issue tax credit loans, which home buyers may use to satisfy the FHA 3.5 percent downpayment requirement.
In addition, approved FHA lenders can purchase a home buyer's anticipated tax credit to pay closing costs and downpayment costs above the 3.5 percent downpayment that is required for FHA-insured homes.
If I'm qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return? Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year's income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.
Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.
For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year, depending on in which year my credit amount is the largest? Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.
The average new home price this month is 2% lower than one year ago, and the average existing home price is up 5% from one year ago. The average price for combined (new and existing) homes in the region is up 1% over September 2008.
Over the past month, new home sales increased 6%, existing home sales increased 1%, and combined total sales were up 1%. This represents a combined total sales decrease of 2% from one year ago.
New home inventory continues its steady decrease again this month and is 39% lower than last year. Resale inventory is 3% lower than a month ago and is 11% lower than it was last year. New and existing inventory combined is 3% lower than last month and is 17% lower than last year.
Supply for combined new and existing homes dropped to a 7.7 month's supply for September. The existing homes supply dropped to 7.4 months, and new homes supply dropped to 10.5 months. A slight buyer's edge is still present in the existing homes markets, and a considerable buyer's edge is present in the new homes market.
Generally speaking, a 5-6 month supply of homes on the market is a balanced market. When supply exceeds 6 months, the market begins to favor buyers and when the supply is less than 5 months, the market tends to favor sellers.
Source: Kansas City Regional Association of REALTORS and Heartland Multiple Listing Service
Copyright 2009. KCRAR is the "Voice for Real Estate in the Kansas City Area"
Should you want market statistics for your neighborhood, contact Ron Mowery, Real Estate Professional at (913) 269-0479 or email him at Ron@JoCoHomesOnline.
The average new home price this month is 2% higher than one year ago, and the average existing home price this month is almost the same as one year ago. The average price for combined (new and existing) homes in the region is down 4% over August 2008.
New home sales decreased 29% over the past month, which represents a 42% decrease from one year ago. Existing home sales also decreased for the first time in six months from one year ago, and they were down 14% from last month.
New home inventory continues its steady decrease again this month and is 36% lower than last year. Resale inventory is about the same compared to a month ago and is 10% lower than it was last year. New and existing inventory combined is slighly lower than last month and is 15% lower than last year.
Supply in the region showed no change over the past month. Supply for combined new and existing homes held steady at 8 month's supply for August. The existing homes supply remained at 11.2 months and existing homes supply remained at 7.6 months A slight buyer's edge is still present in the existing homes markets, and a considerable buyer's edge is present in the new homes market.
Generally speaking, a 5-6 month supply of homes on the market is a balanced market. When supply exceeds 6 months, the market begins to favor buyers and when the supply is less than 5 months, the market tends to favor sellers.
Source: Kansas City Regional Association of REALTORS and Heartland Multiple Listing Service
Copyright 2009. KCRAR is the "Voice for Real Estate in the Kansas City Area"
Should you want market statistics for your neighborhood, contact Ron Mowery, Real Estate Professional at (913) 269-0479 or email him at Ron@JoCoHomesOnline.
Welcome home to 11505 W. 113th Street in the College Park Villas community in Overland Park.
This newly updated townhome is located near JCCC and is a spacious home with two master suites and a loft for an office/study.
The great room showcases a wonderful fireplace and new carpet, and there are beautiful wood floors in the dining, kitchen and halls. New carpet is also found on the stairs and 2nd floor.
The kitchen opens to the deck overlooking the treed lot.
There is a large main floor master bedroom, bath and laundry, and the private 2nd floor master suite features a vaulted ceiling.
The large rec room is located in the lower level finished basement and includes a wet bar and half bath.
The average new home price this month is 2% higher than one year ago, and the average existing home price this month is almost the same as one year ago.
The average price for combined (new and existing) homes in the region is down 1% over July 2008.
Both new and existing home sales increased for the sixth month in a row.
New home sales increased 4% over the past month and are up 85% since January. This represents an 18% decrease from one year ago.
Existing home sales increased 4% over last month and are up 134% since January. This represents a 3% increase from one year ago.
New home inventory continues its steady decrease again this month and is 34% lower than last year. Resale inventory is 1% lower than a month ago and is 12% lower than it was last year. New and existing inventory combined is slighly lower than last month and is 17% lower than last year.
Supply in the region showed little change over the past month. Supply for combined new and existing homes showed an 8 month's supply for July compared to 8.1 in June. The existing homes supply dropped slightly to 7.6 months from 7.7 in June, and the new homes supply dropped from 11.5 in June to 11.2 this month. A buyer's edge is still present in both the new and existing home markets.
Generally speaking, a 5-6 month supply of homes on the market is a balanced market. When supply exceeds 6 months, the market begins to favor buyers and when the supply is less than 5 months, the market tends to favor sellers.
Source: Kansas City Regional Association of REALTORS and Heartland Multiple Listing Service
Copyright 2009. KCRAR is the "Voice for Real Estate in the Kansas City Area"
Should you want market statistics for your neighborhood, contact Ron Mowery, Real Estate Professional at (913) 269-0479 or email him at Ron@JoCoHomesOnline.
Welcome home to 10031 Lamar Avenue in the Nall Hills community of Overland Park. This 4 bedroom, 2.5 bath home is in move-in condition.
Enter the home and be greeted by wood floors in the entry, which continue to the living room, dining/breakfast area, stairs, hallway and all 2nd floor bedrooms.
The cheery kitchen features all new cabinets and appliances, including a double oven, built-in microwave, dishwasher and smooth surface cooktop, an eating bar, ceramic tile flooring and backsplash. The dining/breakfast room offers a sliding glass door to the large deck, with stairs leading to the professionally landscaped patio and private, treed backyard.
The main level formal living room features wood floors, while the open family room on the lower level showcases daylite windows and a wood burning fireplace. The finished basement also offers a large rec room, 4th bedroom, half bath and walk-out to the back patio.
The master bedroom is located on the upper level and features wood floors and a private master bath with tiled shower. Bedrooms 2 and 3 are also located upstairs, feature the wood floors and share a full bath with shower/tub combo. All bedrooms have refreshing ceiling fans.
Additional updates include the new driveway, paint, HVAC system and updated bathrooms with tile floors in the main hall bath and master bath.
Welcome home to 14404 Ballentine Street in the desirable Oxford Mills community in Overland Park.
This spacious 4 bedroom, 3.5 bath home is located on a cul-de-sac and offers 3,338 square feet of living space. Wood floors lead you through the foyer to the great room, featuring a see-through fireplace to the hearth room. The open kitchen plan features a large island, pantry, Corian countertops, breakfast area and cozy hearth for family gatherings.
The large master suite is gorgeous, showcasing a see-through fireplace between the bedroom and the luxurious master bath and an elegant ceiling treatment. The spacious master bath features a whirlpool tub, separate shower, dual vanities, and the double-sided fireplace. All additional secondary bedrooms are also large.
Community amenities include a swimming pool, and Oxford Mills Lake is nearby.
Welcome home to 9345 W. 125th Street in the desirable Hampton Park community of Overland Park.
This one-owner, 1.5 story, 4 bedroom, 3.5 bath home is beautifully maintained. Immediately upon entering you will be impressed with the tall foyer with hardwood floors, which lead you to the gorgeous family room. The family room features 2-story cathedral ceilings, fireplace, abundant windows and hardwood floors.
The large kitchen with abundant cabinets is open to the dining/breakfast area. From the dining area, walk out the glass panel door to your deck overlooking the private, fenced backyard with mature foliage and gardens.
The main level master bedroom is tranquil and offers large windows that look out to the private backyard and its beautiful gardens, as well as a vaulted ceiling, walk-in closet, ceiling fan and private bath. The master bath offers a corner soaking garden tub, separate shower and dual vanity.
Main floor offers an additional bedroom with bath. Second story offers a beautiful loft overlooking the main floor and two additional bedrooms sharing the 3rd full bath.
Downstairs you will find the finished media room with built ins and large office, den or craft room.
All this and it's located just one minute away from Kensington Park, offering 12 acres of recreational fun with a walking trail, two tennis courts, a picnic shelter and playground.
Welcome home to 14301 Wedd Street in the Brookwood Estates community of Overland Park. This exceptional 4 bedroom, 3.5 bath home located on a quiet cul-de-sac is perfect for relaxing or entertaining.
Enjoy outdoor living on the patio with pergola, large built-in grill, outdoor fireplace, private hot tub, plenty of seating and professional landscaping with built-in sprinkler system.
Enter this gorgeous 3,529 square foot home and you'll love the kitchen with hardwood floors, stainless steel appliances, granite countertops, abundant cabinetry with quality accents and moldings, breakfast area, kitchen island and pantry. Hardwood floors continue in the formal dining room and the vaulted hearth room, which features a fireplace framed in detailed woodwork. The separate family room showcases a second fireplace. In addition, you'll find the office conveniently located on the main floor.
Up the split staircase you'll find the four bedrooms, including the master suite with sitting room, walk-in closet, tray ceiling and private bath with corner garden tub, separate shower and large vanity. The three secondary bedrooms also include walk-in closets.
Additional features include the laundry room with built-ins and ceramic tiles, 3-car attached side entry garage, full basement with bath stub, and plenty of community amenities, including a pool, tennis courts, sand volleyball court, play area and more.
The average new home price this month is 4% higher than one year ago, and the average existing home price this month was down 3% from one year ago.
The average price for combined (new and existing) homes in the region is down 4% over June 2008.
New home sales increased 10% over the past month and are up 76% since January. This represents a 26% decrease from one year ago.
Existing home sales increased 17% over last month and are up 124% since January. This represents a 2% increase from one year ago.
New home inventory continues its steady decrease again this month and is 34% lower than last year. Resale inventory is slightly lower than a month ago and is 13% lower than it was last year. New and existing inventory combined is slighly lower than last month and is 17% lower than last year.
Supply in the region showed little change over the past month. Supply for combined new and existing homes showed an 8.1 month's supply for June compared to 7.3 in May. The existing home supply rose slightly to 7.7 months from 6.8 in May, and the new homes supply dropped from 11.6 in May to 11.5 this month. A buyer's edge is still present in both the new and existing home markets.
Generally speaking, a 5-6 month supply of homes on the market is a balanced market. When supply exceeds 6 months, the market begins to favor buyers and when the supply is less than 5 months, the market tends to favor sellers.
Source: Kansas City Regional Association of REALTORS and Heartland Multiple Listing Service
Copyright 2009. KCRAR is the "Voice for Real Estate in the Kansas City Area"
Should you want market statistics for your neighborhood, contact Ron Mowery, Real Estate Professional at (913) 269-0479 or email him at Ron@JoCoHomesOnline.
Disclaimer: ActiveRain Corp. does not necessarily endorse the real estate agents, loan officers and brokers listed on this site. These real estate profiles, blogs and blog entries are provided here as a courtesy to our visitors to help them make an informed decision when buying or selling a house. ActiveRain Corp. takes no responsibility for the content in these profiles, that are written by the members of this community.
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