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Tax Credit for First Time Home Buyers

Would you like to have a federal tax credit of $8,000 simply because you purchased a home this year?  As part of the American Recovery and Reinvestment Act of 2009, a tax credit equal to 10% of the purchase price of a home, up to a maximum of $8,000, is available to certain first-time home buyers who purchase a main residence on or after January 1 and before December 1, 2009.   First-time home buyers who purchased their main home in 2008 are entitled to a credit of up to $7500. This article is limited to a discussion of the credit available for 2009 purchases.
 

Who is entitled to such a credit?  First-time home buyers are if  purchasing a main home, i.e., principal residence, whether it is a house - new or resale - mobile home, condominium, cooperative apartment, etc.  The purchase must occur on or after January 1, 2009 and before December 1, 2009.  The purchase date is the closing date, when title transfers to the buyer.  For someone who is constructing their main home (not buying it from a home builder), the purchase date is the date you first occupy it. 

Who qualifies as a first-time home buyer?  You (and your spouse, if married) must not have owned another main home during the 3-year period immediately preceding the closing date of your qualifying purchase.  If you or your spouse owned a main home during the three preceding years, then neither will qualify for the credit.
 

Are there income limits?  Yes, your modified adjusted gross income must be less than $95,000, if  single, or less than $170,000, if married filing jointly. You are allowed the full amount of the credit, i.e., $8,000,  if your modified adjusted gross income is $75,000 or less, if single, and $150,000 or less, if married filing jointly.  Between these two income levels, the credit is phased out at the higher income levels.

This credit is not available to nonresident aliens, or for homes located outside the United States, for  homes acquired by gift or inheritance, or those acquired from a related person.  The IRS defines a related person for this credit to be: your spouse, ancestors (parents, grandparents, etc.) or lineal descendants (children, grandchildren, etc.); a corporation in which one of the buyers owns more than 50% in value of the outstanding stock of the corporation; or a partnership in which you own more than 50% of the capital interests or profits interest.
 

For 2009 purchases, if the home ceases to be your main home within 36 months of the closing date, you must repay the credit by including it as additional tax in your return for the year the home ceases to be your main home.  There are some exceptions to your obligation to repay the credit.   If you sell the home to an unrelated party, the repayment is limited to the amount of gain on the resale.  If the home is destroyed, condemned or disposed of under threat of condemnation,  you will have two years to acquire a new home to avoid repayment of the credit.  If as part of a divorce settlement, the home is transferred to one of the spouses, the  spouse receiving full title is responsible for any repayment the credit.  Repayment is not required if you die; however your surviving spouse may be required to repay his or her half of the credit.
 

To qualify for the credit, complete IRS Form 5405 and claim your credit amount on your 1040 return.  If your credit exceeds your tax liability, the IRS will refund you the difference.

Full post as published by New Jersey Law Blog on July 17, 2009 (boomark / email).