Questions about the current homeowner 6,500 tax credit answered.

By
Real Estate Agent with Amanda Realty Group (Alexander Realty)

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, feel free to contact me for more information.

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.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.

 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
  • 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).
    1. 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.

    2. 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.
     

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    Amanda Alejandro

     

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    Rainmaker
    5,690,569
    Roy Kelley
    Realty Group Referrals - Gaithersburg, MD

    Good information to share with prospective home buyers. Have a great day!

    Nov 12, 2009 01:35 AM #1
    Rainmaker
    631,202
    Don Rogers
    Keller Williams Realty Chesterfield - O'Fallon, MO
    Realtor, Broker, CDPE, GRI, OnullFallon MO & St Charles County MO homes

    Amanda,

    Thank you for the overview of the new tax credit and expansion to home sellers.  It will be good to see how this will affect the real estate market.

    WTG, ma'am.

    Nov 12, 2009 12:49 PM #2
    Anonymous
    Decon

    Closed on 11/6/2009 at 1:30 PM.  Realator didn't know about this?

     

    Is there any help for me?

     

    D

    Nov 20, 2009 02:42 PM #3
    Rainer
    30,625
    Amanda Alejandro
    Amanda Realty Group (Alexander Realty) - Saint Charles, MO
    President Amanda Alejandro Realty Group

    yes you can still qualify for your tax credit. contact your tax professional and they can tell you what your needing to bring with you in order to get the 6,500 and file with your taxes.

    Dec 08, 2009 08:39 AM #4
    Anonymous
    lisa

    Im selling my home. I've been in my home since August 2005. If I plan to settle March 1, 2010, do I qualify for the $6500 tax credit when purchasing my new home before April 2010. I am about 4 months shy of being in my current home for 5 years.

    Jan 14, 2010 05:34 AM #5
    Anonymous
    Rosa

    Hi, I'm buying a home for $830,000. Would it qualify me for the credit if I pay the seller's agent fees and seller's transfer taxes (more than $30,000). In other words, are seller's agent fees part of the cost basis? Thanks,

    Jan 25, 2010 03:13 AM #6
    Anonymous
    TracieW

    I owned a house from 10/1997 through 8/2007 and will be closing on a new build in Feb 2010.  Do I qualify for this credit since I did live in my previous home 5 years in the previous 8 years?  I tried entering the information in tax software but keep getting errors because my previous home sale was before 2009.

    Jan 30, 2010 04:33 AM #7
    Anonymous
    mwebster

    I will have lived @ my current residence for 5yrs in october of this year. will I be able to claim the owner taxcredit next year?

    Feb 11, 2010 10:19 AM #8
    Anonymous
    daveP

    I lived in my former residence from 1987 until 2/2008, which qualifies me for the 6500 credit upon purchasing a new home.  My wife and I were married on 02/08/2008, and I moved to her residence.  Since we were not married during my qualification period does that relieve her of the stipulation that married people BOTH must qualify?

     

     

    Mar 05, 2010 09:24 AM #9
    Rainer
    30,625
    Amanda Alejandro
    Amanda Realty Group (Alexander Realty) - Saint Charles, MO
    President Amanda Alejandro Realty Group

    if you were not married I would call a lender just to be sure but I think you still qualify.

     

    if you have lived in your residence five years in october you will not be able to claim the credit. it expires april you have to be closed by june. Since you wouldn't qualify until after then I don't think you can recieve the credit

    home owner 1997-2007 call a tax professional  if you sold in 07 the credit wasn't out then. but I would call a tax professional

     

    purchase 830,000 if you have owned a home 5 out of the last eight year then yes you'd qualify however there are income ristrictions etc. so check with a lender or tax professional

     

     

    Mar 09, 2010 12:11 AM #10
    Anonymous
    Nancy

    We closed on November 4, 2009 and our accountant is telling us that we don't qualify for the credit.  That's very unfair!!  Is there anything we can do to get that credit??  Thanks.

    Apr 01, 2010 02:22 AM #11
    Anonymous
    dzeni

    hi i like to know we owed house from may 2002 to 2007 buy anather house 2006 but still own first one like i told you till 2007 ,secend house forclosure 2 years ago so i just like to know since we lived in first house 5 years can we have 6500$ we like to byu another house thanks

    Apr 21, 2010 04:38 PM #12
    Rainer
    30,625
    Amanda Alejandro
    Amanda Realty Group (Alexander Realty) - Saint Charles, MO
    President Amanda Alejandro Realty Group

    I am not sure if the credit qualifies for only owner occupieds  I would advise with my cpa or your tax professional. since you owned the home until 2007 and the credit wasn't available until 2009 then I don't think youd qualify

    Apr 26, 2010 04:45 AM #13
    Rainer
    30,625
    Amanda Alejandro
    Amanda Realty Group (Alexander Realty) - Saint Charles, MO
    President Amanda Alejandro Realty Group

    I am not sure if the credit qualifies for only owner occupieds  I would advise with my cpa or your tax professional. since you owned the home until 2007 and the credit wasn't available until 2009 then I don't think youd qualify

    Apr 26, 2010 04:45 AM #14
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    Rainer
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    Amanda Alejandro

    President Amanda Alejandro Realty Group
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