For Charlotte, NC First Time Home Buyers, here are some answers to FAQs on the newly extended and expanded Home Buyer Tax Credit that was signed into law by President Obama on November 7, 2009.
First time home buyer purchases soared in 2009, setting a record of 47% of all homes sold this year in the United States, due in large part, to the First Time Home Buyer Tax Credit that was scheduled to expire on December 1, 2009 (but was extended for 5 months), record-low interest rates, and record affordability for homes that had declined in value over the past two years.
The Home Buyer Tax Credit law now applies to current homeowners purchasing a new or existing home before April 30, 2010. Here are the Who, What, When, and How's of this new stimulus plan to spur the housing market:
- First time home buyers (the buyer, or his/her spouse, must NOT have owned a residence in the past 3 years (this does not necessarily mean someone who has never bought a house).
- Current homeowners or repeat buyers - Current homeowners must have lived in their principal residence for 5 consecutive years out of the previous 8 years ending on the date of purchase. You do not have to sell your old principal residence to qualify for the $6,500 repeat buyer tax credit when you buy your next principal residence.
- If you're married and one spouse has owned a principal residence within the last 3 years, then NEITHER spouse qualifies for the $8,000 first-time tax credit. However, you may qualify for the $6,500 repeat buyer tax credit.
- If a single person qualifies as a first time buyer purchases a home with someone who is not, and later they get married, the single person can still claim the maximum tax credit. The IRS looks at marital status on the date of purchase.
- Buyers who are NOT MARRIED, and who jointly buy a house, can allocate the tax credit to whichever buyer qualifies for the tax credit.
- Legally separated or estranged couples may not qualify for the tax credit if ONE of the spouses has owned a principal residence in the last 3 years.
- A parent could buy a house jointly with his son or daughter - the son or daughter could qualify for the first time tax credit if he/she uses the home as a prinicipal residence (even if the parents' names are on the mortgage as co-signers).
- First-time home buyers can rent out rooms in their prinicpal residence and STILL QUALIFY for the tax credit if they are otherwise eligible. Duplex owners can rent out one unit and still claim the tax credit, but the credit will only be based on the cost of the unit they use as a prinicpal residence.
- Income limits: Under the new law, income limits were raised for homes purchased after November 6, 2009. Single first-time home buyers with modified adjusted gross incomes (MAGI) up to $125,000 and married couples with incomes up to $225,000 qualify for the maximum $8,000 tax credit. The tax credit decreases on a sliding scale for single buyers with adjusted incomes between $125,000 and $145,000, and married couples earning between $225,000 and $245,000. Single buyers earning over $145,000 and married couples earning over $245,000 are not eligible for the tax credit. For homes purchased prior to November 6, 2009, the lower income limits apply: full credit for MAGI up to $75,000 single or $150,000 joint filers; reduced credit for single buyers with income between $75,000 and $95,000 and joint filers between $150,000 and $170,000; and no tax credit for those with higher incomes.
- The buyer must be 18 years old on the date of purchase.
- Dependents are not eligible for the tax credit
- Members of the Armed Forces and certain federal employees serving outside the United state have an extra year to qualify for the tax credit when purchasing a home.
- A buyer who owned a prinicpal residence outside of the US within the last 3 years is NOT DISQUALIFIED from taking the tax credit when he buys a prinicpal residence in the US.
- $8,000 tax credit ($4,000 filing separate) for qualified first-time home buyers (see above)
- $6,500 tax credit ($3,250 filing separate) for qualified current homeowners (see above)
- The tax credit ONLY applies to homes used as a principal residence - NO investment, vacation or rental properties!
- The tax credit ONLY applies to homes purchased for $800,000 or less.
- The tax credit reduces the buyer's tax bill, or increases his refund, dollar for dollar!
- The tax credit will be paid out to buyers even if they owe no tax or the credit is more than the amount of tax owed!
- For eligible home purchases in 2009, the tax credit DOES NOT HAVE TO BE REPAID unless the buyer stops using this home as his primary residence within three years of purchase.
- Under the previous tax credit law, first-time home buyers who purchased a home in 2008 are eligible for a repayable tax credit up to $7,500 (this tax credit is essentially a no-interest loan, and must be re-paid in 15 equal annual installments beginning in the 2010 tax year. This tax credit applies ONLY to homes purchased in 2008 by eligible first-time home buyers.
- Purchases of mobile homes (including land) may qualify for the credit.
- Deadline for qualifying home purchases has been extended. Buyers must be under contract on or before April 30, 2010, and closing must occur on or before June 30, 2010
- The new and expanded Home Buyer Tax Credit law went into effect on November 6, 2009. The $8,000 tax credit affects home purchases made after April 8, 2008 and before May 1, 2010.
- For buyers who build a new home, the purchase date is considered to be the first day the buyers occupied the house.
- First-time buyers who bought home in 2009 can claim the tax credit on their 2008 tax return (due April 15, 2009) or 2009 tax return, which is due on April 15, 2010. For 2010 purchase, buyers can claim their credit on their 2009 or 2010 tax return.
- Buyers may NOT claim the tax credit before the closing date.
- If closing occurred after April 15, 2009, the buyer can claim the tax credit on his 2008 return by filing an amended return, or requesting an extension.
- Buyers can claim the tax credit by using IRS Form 5405 (make sure you are using the new Form 5405 that was revised after Nov. 6, 2009), and this form can be filed with the buyer's original OR amended tax return.
- Buyer must attach proof or documentation of home purchase (such as HUD1) to tax return.
- Tax credit forms may take 12-16 weeks to process by the IRS.