Homebuyer Tax Credit Changes

Homebuyer Federal Income

Tax Credit Changes

November, 2009

re Overview– In 2008, Congress created a $7,500 First-Time Homebuyer Income

Tax Credit. It went into effect April 8, 2008 and was set to expire July 1, 2009.

– One of the criticisms of the credit was that a homebuyer who received the tax credit had to repay it over 15 years

– It was modified and the new rules became effective for homes purchased on or after January 1, 2009 and before December 1, 2009.

– One of the key modifications was that in most circumstances the homebuyer did not have to repay the tax credit.

– In November, 2009, the Congress extended and expanded the Homebuyer Tax Credit. The modifications are detailed on the following slides. All modifications and changes became effective when the President signed the bill on November 9, 2009.

Homebuyer Tax Credit Changes

Homebuyer Tax Credit Changes

Feature January 1 – November 30, 2009:

Rules as enacted February, 2009.

December 1, 2009 – April 30, 2010:

Rules as enacted November, 2009.

First-time Buyer – Amount of credit.

$8,000($4,000 married filing

separately).

Same.

First-time Buyer – Definition for eligibility.

May not have had an interest in a principal residence for 3 years

prior to purchase.

Same.

Homebuyer Tax Credit Changes

Feature January 1 – November 30, 2009:

Rules as enacted February, 2009.

December 1, 2009 – April 30, 2010:

Rules as enacted November, 2009.

Current Homeowner – Amount of credit.

No provision. $6,500($3,250 married filing

separately).

Current Homeowner – Definition for eligibility.

No provision. Must have used the home sold or being sold as a principal residence consecutively for 5 of the previous 8 years.

Homebuyer Tax Credit Changes

Feature January 1 – November 30, 2009:

Rules as enacted February, 2009.

December 1, 2009 – April 30, 2010:

Rules as enacted November, 2009.

Termination of Credit Purchases after November 30, 2009.

Purchases after April 30, 2010.

Binding Contract Rule No provision. So long as written binding contract to

purchase is in effect on April 30, 2010, the

purchaser will have until July 1, 2010 to close.

What the “Phase Out” means. For singles making over $125,000 and couples making over $225,000, the credit is proportionately reduced as incomes approach $145,000 and $245,000 respectively.

So if a couple makes $240,000, the excess amount is used to create a fraction 15,000/20,000 (.75) times the credit amount. 75% or $6,000 of the credit would be disallowed. They would still get a $2,000 credit.

Homebuyer Tax Credit Changes

INCOMELIMITS

January 1 – November 30, 2009:Rules as enacted February, 2009.

December 1, 2009 – April 30, 2010: Rules as enacted November, 2009.

Type Income Limit Phase Out Start

Income Limit Phase Out Start

Single $95,000 $75,000 $145,000 $125,000

Married $170,000 $150,000 $245,000 $225,000

Homebuyer Tax Credit Changes

Feature January 1 – November 30, 2009:

Rules as enacted February, 2009.

December 1, 2009 – April 30, 2010:

Rules as enacted November, 2009.

Limitation on Cost of Purchased Home

None. $800,000

Purchase by a Dependent

No provision. Ineligible.

Anti-fraud Rule None. Purchaser must attach documentation of

purchase to tax return.

The Home– The home subject to the credit must be the “main home”

(i.e.: principal residence, where the homeowner spends 50% or more of his or her time.) It can be a condo, single family detached, co-op, townhouse or something similar.

– The home must be located in the United States.

– Vacation homes and rental properties are not eligible.

– For new construction, the “purchase date” is the date the homebuyer occupies the home. So the move-in date must be before July 1, 2010.

Homebuyer Tax Credit Changes

e Recapture - 3 Year Residency– If the home is resold prior to three years of ownership, the

tax credit must be repaid.

– This provision is designed to prevent flipping homes in order to get the tax credit.

Homebuyer Tax Credit Changes

e When Can You Claim the Credit?– It can be claimed on your 2009 Tax Return (to be filed by

April 15, 2010), an amended 2008 Tax Return, or your 2010 Tax Return.

Homebuyer Tax Credit Changes

e Conclusion– The new credit is greatly improved compared to the old

credit.

– Current homeowners may now take advantage of the tax credit.

– The credit does not need to be repaid as long as you occupy the home for 3 years.

– Hundreds of thousands of potential buyers are estimated to take advantage of the credit.

– For more info on the credit and the 2009 Stimulus legislation visit www.realtor.org/government_affairs or consult your tax advisor.

Homebuyer Tax Credit Changes

e CaveatThis is based on information available as of November 11, 2009 and is not meant to be tax or legal advice.

As with any tax law change, check with a tax advisor regarding availability, eligibility and possible timing of any tax credit.

Homebuyer Tax Credit Changes