Here is the scoop and a great 'understandable' reference guide for the $6,500 Current Home Owner Tax-Credit:
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. You can move up, down, sideways...There are no restrictions on what type of home you buy, it just has to be a personal residence so you could sell a million dollar home and buy a townhome for $150,000 and as long as you meet all the other limitations you qualify for the $6,500 tax-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 person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the home ownership 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. Again, you do not have to 'move-up'! You just need to have owned a personal residence for 5 consecutive years out of the last eight. You could currently be living in an apartment and have owned a personal residence from 2002-2007 (a full five years) and qualify for the credit if you buy a home on or before April 30, 2010!
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. This is a true tax-credit! For example: If your federal income tax at the end of the year was $8,300 and it just so happens that you withheld exactly $8,300 then you would get a refund check for $6,500 or 10 percent of the purchase price of your home.
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. In others word, if you make more that these limits then you may qualify for a portion of the credit. For example: You are single and you made $135,000 then you would qualify for 50% or $3,250 of the credit. If you still have questions on this one give me a call and I will walk you through your scenario 740-5008,
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. The previous credit was only for First Time Home buyers and you had to pay it back to Uncle Sam! This one is for current home owners who sell a personal residence and buy a different one. Oh, and you don't have to pay it back!!
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). Fill out the form and provide a copy of the HUD-1 Settlement statement when you file your taxes.
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. This is not a misprint, you can buy any type of home it just has to be a personal residence. So you can't buy a vacation home, investment property...it has to be a personal residence! To my knowledge their are no houseboats for sale on npdoddge.com. :)
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 adviser for more information. Also see IRS Form 5405. This has been added just to clear up the crazy scenarios that people will come up with to try and qualify for credits such as this one.
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). The dates are the most important factor here. Buying a new home is an outstanding way to take advantage of this credit just make sure you are on track with the process so your new construction home closes on or before June 30,2010!
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 a $6,500 tax credit would owe nothing to the IRS. This is a true credit! If you withheld the exact amount of taxes that you owe then you would get a check from Uncle Sam for this credit!
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.
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. In other words: You close on your home and then file an amended return and the tax credit is in your pocket possibly within weeks after your closing takes place so don't think you have to wait until you file your taxes next year to obtain the monies from this credit.
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. When in doubt we urge you to visit with your tax adviser.
For a complete list of details click here: npdodge.com/taxcredit
Feel free to call me direct if you have any questions about the $6,500 tax-credit. 740.5008