Home Buyer Tax Credit: 10 Things to Know
On Nov. 6, the president signed 1 the new Worker, Homeownership, and Business Assistance Act of 2009 into law. The
centerpiece of this legislation is the extension and liberalization of what is now inaccurately called the first-time home buyer credit.
Here are the 10 most important things to know about the revamped credit.
1. New purchase deadline extends into 2010
The home buyer credit was previously scheduled to expire on Nov. 30, 2009. The new law extends the deal to cover purchases of
U.S. principal residences that close by April 30, 2010. However, if a home is under contract on that date, the deadline for closing is
extended to June 30, 2010.
2. Existing homeowners can now qualify
The new law allows a reduced credit for existing homeowners who buy a replacement U.S. principal residence after Nov. 6, 2009.
The credit equals the lesser of: (1) $6,500, or (2) 10% of the price of the replacement home, or (3) $3,250 for a buyer who uses
married filing separate status. The new existing-homeowner credit is only available for purchases that close after Nov. 6, 2009. To
qualify, the buyer must have owned and used the same home as a principal residence for at least five consecutive years during the
eight-year period ending on the purchase date for the replacement principal residence. If you’re married, your spouse must pass
this test too (whether or not you file jointly).
3. Larger credits still allowed for first-time buyers
Before the new law, the home buyer credit was only available to so-called first-time buyers, which means someone who had not
owned a U.S. principal residence during the three-year period ending on the purchase date for a home that will serve as the
buyer’s new principal residence. If you’re married, both you and your spouse must pass the three-year test (whether or not you file
jointly). These first-time home buyer rules still apply for purposes of claiming a larger credit of up to $8,000. Specifically, the credit
for a first-time buyer still equals the lesser of: (1) $8,000, or (2) 10% of the home purchase price, or (3) $4,000 if you use married
filing separate status.
4. Higher-income folks can now qualify
The home buyer credit is phased out (reduced or completely eliminated) as income goes up. However, the new law significantly
raises the phase-out ranges so that many more higher-income buyers will now qualify.
* For purchases after Nov. 6, 2009, the phase-out range for unmarried individuals and married folks who file separately is between
modified adjusted gross income (MAGI) of $125,000 and $145,000 (way up from the old-law range of $75,000-$95,000).
* The phase-out range for married joint filers is now between MAGI of $225,000 and $245,000 (way up from the previous range of
$150,000-$170,000).
5. New $800,000 purchase price limit
For purchases after Nov. 6, 2009, the credit can only be claimed for a principal residence that costs $800,000 or less. So if your
new home costs $800,001, the credit is completely off limits (but I doubt too many people will feel sorry for you).
6. No more credits for kids or dependents
For purchases after Nov. 6, 2009, the home buyer must be at least 18 years old on the purchase date to qualify for the credit. Also,
no credit is allowed for a buyer who can be claimed as a dependent on someone else’s Form 1040 for the year of the purchase.
These new rules are intended to shut down the practice of claiming the credit for youngish buyers who really don’t even have
incomes of their own (like college students who use money from their parents to buy a pad near campus).
7. New anti-fraud rules
A recent government report said the IRS has already identified over 100,000 returns with potentially fraudulent home buyer credits.
This is hardly surprising when the government is willing to give away up to $8,000 in free money to anyone who files a return, even
when that person reports no income. Believe it or not, absolutely no documentation was required to claim the credit, until now. For
credits claimed on 2009 and 2010 returns, buyers must attach a properly executed real estate settlement sheet to the return. Also,
Published November 11, 2009
credits claimed on 2009 and 2010 returns, buyers must attach a properly executed real estate settlement sheet to the return. Also,
the IRS can now simply disallow credits in fishy circumstances (like when it appears the $8,000 credit is being claimed by someone
who already owns a home).
8. Credits can still be claimed on prior-year returns
Under the revamped rules, you can still claim the credit for a 2009 purchase on your 2008 return (although you would now
generally have to file an amended return to do so). You can also claim the credit for a 2010 purchase on your 2009 Form 1040.
This allows you to cash in on the credit sooner rather than later, and it may also allow you to claim a larger credit if your income in
the year of purchase is higher than in the preceding year.
9. Credits must still be repaid in some cases
Under old-law rules for homes purchased between April 9, 2008 and Dec. 31, 2008, buyers are generally required to repay the
credit over 15 years. However, this repayment rule is generally eliminated for purchases after 2008. That said, you might still have
to repay the credit if you sell your home within three years of the purchase date or stop using it as your principal residence during
that period.
10. Special rules for military service members
For military service members on extended duty outside the U.S., the new law lengthens the deadline for closing on home
purchases for an extra year, to April 30, 2011 (or June 30, 2011 for homes under contract on April 30, 2011). The new law also
waives the credit repayment rules for service members who are forced to move due to receiving new orders. The same special
rules apply to members of the foreign service and intelligence communities.
1http://www.smartmoney.com/personal-finance/real-estate/homebuyer-tax-credit-now-more-are-eligible/
URL for this article:
http://www.smartmoney.com/Personal-Finance/Taxes/10-Things-You-Should-Know-About-The-New-Homebuyer-Credit/
Friday, November 13, 2009
Friday, September 18, 2009
Following is a link that will take you to an article that appeared in the New York Times that addresses. It’s a good article explaining where we’ve come from, where we are and where we might be going as far as the federal tax credit is concerned.
Enjoy the day!
http://www.nytimes.com/2009/09/16/business/16home.html?_r=2&ref=business
Enjoy the day!
http://www.nytimes.com/2009/09/16/business/16home.html?_r=2&ref=business
Thursday, August 6, 2009
Open House Sunday August 9th from 12:00-2:00pm
Open House this Sunday 8/9 from 12:00-2:00pm.
Stop by and take another look at this cute home in Columbia Heights! $125,000
Short Sale.
Shona Namie
Realtor
Coldwell Banker Burnet
612-865-8070
952-556-1764
www.shonanamie.com"A Unique Name in Real Estate"
Click the following URL to see the listing:http://matrix.northstarmls.com/de.asp?k=309210XG9SV&p=DE-48217894-847
Stop by and take another look at this cute home in Columbia Heights! $125,000
Short Sale.
Shona Namie
Realtor
Coldwell Banker Burnet
612-865-8070
952-556-1764
www.shonanamie.com"A Unique Name in Real Estate"
Click the following URL to see the listing:http://matrix.northstarmls.com/de.asp?k=309210XG9SV&p=DE-48217894-847
Tuesday, June 30, 2009
Monday, June 22, 2009
$8,000 Federal Tax Credit
For more information on the $8,000 Federal Tax credit Click here:
http://www.federalhousingtaxcredit.com/2009/index.html
http://www.federalhousingtaxcredit.com/2009/index.html
Sunday, June 14, 2009
Friday, June 5, 2009
Wednesday, May 20, 2009
Hot Streak in Home Sales!
Home sales hot streak continues into spring heat
Minneapolis, Minnesota (May 12, 2009) – April home sales in the Twin Cities were even stronger than March's upswing, according to the Minneapolis Area Association of REALTORS® (MAAR) based on data from the Regional Multiple Listing Service of Minnesota, Inc.
There were 5,211 pending sales in April, up 23.8 percent from last April. This is the highest showing of signed purchase agreements in April since 2005 and the tenth consecutive month of year-over-year increases.
"Low rates and excellent affordability are what this is all about," said Steve Havig, MAAR President. "Buyers can see for themselves that opportunities are available and the time for action is now."
Of the month's pending sales, 46.0 percent were lender-mediated foreclosures and short sales—down from the last few months as more traditional properties are sold during the spring selling season but up from last year at this time.
The supply of homes for sale continues to experience sluggish growth this spring. There are currently 26,410 homes for sale in the Twin Cities, up 416 units from last month and down 18.4 percent from this time last year. The number of houses for sale for each buyer, as measured by our Supply-Demand Ratio, sits at 5.23 for May—down 28.6 percent from this time last year.
The median sales price for all properties in April of $153,000 is down 25.2 percent from a year ago. While this figure is mathematically correct, it is conceptually flawed. Since a higher share of sales this April were lender-mediated than last April, the number is skewed downward. The median April sales price of traditional homes was $205,000, down 8.5 percent from a year ago. Lender-mediated homes posted an April figure of $120,000, down 21.5 percent from a year ago.
"The overall median price in this market is misleading," said MAAR President-Elect, Brad Fisher. "The traditional and lender-mediated markets don't exist in separate vacuums, but they do include very different kinds of sellers and buyers. It is important to note the distinction."
Established in 1887, the Minneapolis Area Association of REALTORS® (MAAR) is the leading regional advocate and provider of information services, research and education on the real estate industry for brokers, real estate professionals and the public. With more than 8,500 members, MAAR is one of the 25 largest local REALTOR® associations in the nation and serves the Twin Cities 13-county metro area and western Wisconsin.
Minneapolis, Minnesota (May 12, 2009) – April home sales in the Twin Cities were even stronger than March's upswing, according to the Minneapolis Area Association of REALTORS® (MAAR) based on data from the Regional Multiple Listing Service of Minnesota, Inc.
There were 5,211 pending sales in April, up 23.8 percent from last April. This is the highest showing of signed purchase agreements in April since 2005 and the tenth consecutive month of year-over-year increases.
"Low rates and excellent affordability are what this is all about," said Steve Havig, MAAR President. "Buyers can see for themselves that opportunities are available and the time for action is now."
Of the month's pending sales, 46.0 percent were lender-mediated foreclosures and short sales—down from the last few months as more traditional properties are sold during the spring selling season but up from last year at this time.
The supply of homes for sale continues to experience sluggish growth this spring. There are currently 26,410 homes for sale in the Twin Cities, up 416 units from last month and down 18.4 percent from this time last year. The number of houses for sale for each buyer, as measured by our Supply-Demand Ratio, sits at 5.23 for May—down 28.6 percent from this time last year.
The median sales price for all properties in April of $153,000 is down 25.2 percent from a year ago. While this figure is mathematically correct, it is conceptually flawed. Since a higher share of sales this April were lender-mediated than last April, the number is skewed downward. The median April sales price of traditional homes was $205,000, down 8.5 percent from a year ago. Lender-mediated homes posted an April figure of $120,000, down 21.5 percent from a year ago.
"The overall median price in this market is misleading," said MAAR President-Elect, Brad Fisher. "The traditional and lender-mediated markets don't exist in separate vacuums, but they do include very different kinds of sellers and buyers. It is important to note the distinction."
Established in 1887, the Minneapolis Area Association of REALTORS® (MAAR) is the leading regional advocate and provider of information services, research and education on the real estate industry for brokers, real estate professionals and the public. With more than 8,500 members, MAAR is one of the 25 largest local REALTOR® associations in the nation and serves the Twin Cities 13-county metro area and western Wisconsin.
Monday, April 27, 2009
Lender-Mediated homes for sale drops!
Number of lender-mediated homes for sale dropsQ1 2009 Update to "Foreclosures and Short Sales" report released by MAAR
Minneapolis, Minnesota (April 16, 2009) – The number of foreclosures and short sales that are for sale in the Twin Cities housing market is falling quickly, according to an updated research report released by the Minneapolis Area Association of REALTORS® (MAAR) based on data from the Regional Multiple Listing Service of Minnesota, Inc (RMLS).
After four years of exponential growth, the number of lender-mediated properties for sale dropped by more than 1,200 units from February 1 to April 1 of 2009. The decline is even more impressive considering that the spring market typically sees an increase in the number of homes for sale.
The drop can be attributed in part to flattening new foreclosure and short sale listing activity, but mostly it is related to heavy home sales spurred by the likes of plunging mortgage rates, a federal $8,000 tax credit for first-time home buyers and record affordability.
"There's still a lot of lender-mediated inventory to work through," said Steve Havig, 2009 President of the Minneapolis Area Association of REALTORS®. "But buyers are absorbing it more quickly this year."
Lender-mediated home values are dropping quickly, while traditional homes are fairing better. The median sales price of lender-mediated homes in Q1 2009 was $122,900, a decrease of 21.7 percent from the same time last year. The median sales price for traditional homes was $212,000, a drop of a quieter 3.6 percent.
For Q1 2009, 36.1 percent of new listings and 58.8 percent of closed sales were lender-mediated. Declining activity in both supply and demand in the traditional, non-lender-mediated market, means that foreclosures and short sales will continue to hold a heavy market share throughout 2009.
Want to see how foreclosures and short sales are affecting various neighborhoods and cities within the Twin Cities metro area? Access an interactive data board with in-depth neighborhood reports and commentary at Lender-Mediated Report – Interactive Tool.
The five-page "Foreclosures and Short Sales" report for Q1 2009 can be found on the Minneapolis Area Association of REALTORS® website at www.mplsrealtor.com and includes more analysis and an explanation of the research methodology.
Established in 1887, the Minneapolis Area Association of REALTORS® (MAAR) is the leading regional advocate and provider of information services, research and education on the real estate industry for brokers, real estate professionals and the public. With more than 8,500 members, MAAR is one of the 25 largest local REALTOR® associations in the nation and serves the Twin Cities 13-county metro area and western Wisconsin.
Minneapolis, Minnesota (April 16, 2009) – The number of foreclosures and short sales that are for sale in the Twin Cities housing market is falling quickly, according to an updated research report released by the Minneapolis Area Association of REALTORS® (MAAR) based on data from the Regional Multiple Listing Service of Minnesota, Inc (RMLS).
After four years of exponential growth, the number of lender-mediated properties for sale dropped by more than 1,200 units from February 1 to April 1 of 2009. The decline is even more impressive considering that the spring market typically sees an increase in the number of homes for sale.
The drop can be attributed in part to flattening new foreclosure and short sale listing activity, but mostly it is related to heavy home sales spurred by the likes of plunging mortgage rates, a federal $8,000 tax credit for first-time home buyers and record affordability.
"There's still a lot of lender-mediated inventory to work through," said Steve Havig, 2009 President of the Minneapolis Area Association of REALTORS®. "But buyers are absorbing it more quickly this year."
Lender-mediated home values are dropping quickly, while traditional homes are fairing better. The median sales price of lender-mediated homes in Q1 2009 was $122,900, a decrease of 21.7 percent from the same time last year. The median sales price for traditional homes was $212,000, a drop of a quieter 3.6 percent.
For Q1 2009, 36.1 percent of new listings and 58.8 percent of closed sales were lender-mediated. Declining activity in both supply and demand in the traditional, non-lender-mediated market, means that foreclosures and short sales will continue to hold a heavy market share throughout 2009.
Want to see how foreclosures and short sales are affecting various neighborhoods and cities within the Twin Cities metro area? Access an interactive data board with in-depth neighborhood reports and commentary at Lender-Mediated Report – Interactive Tool.
The five-page "Foreclosures and Short Sales" report for Q1 2009 can be found on the Minneapolis Area Association of REALTORS® website at www.mplsrealtor.com and includes more analysis and an explanation of the research methodology.
Established in 1887, the Minneapolis Area Association of REALTORS® (MAAR) is the leading regional advocate and provider of information services, research and education on the real estate industry for brokers, real estate professionals and the public. With more than 8,500 members, MAAR is one of the 25 largest local REALTOR® associations in the nation and serves the Twin Cities 13-county metro area and western Wisconsin.
Tuesday, March 31, 2009
DON’T MISS OUT ON THIS
GREAT OPPORTUNITY TO
PURCHASE YOUR
DREAM HOME AND
POCKET SOME HUGE SAVINGS!
G O V E R N M E N T O F F E R S
$ 8 0 0 0 T A X C R E D I T T O
1 S T T I M E H O M E B U Y E R S !
Shona Namie 612.865.8070 Realtor
Scott Smith 612.327.8666 PHH Home Loans
Contact your PHH Home Loans Mortgage Consultant
for more information and a free same-day pre-approval:
Mortgage loans are subject to qualification, receipt of satisfactory appraisal
and verification of income, asset and debt information provided
by the seller. *Certain eligibility criteria must be met. Homebuyers
should consult their tax advisor for further details. Financing provided
by PHH Home Loans, 7550 France Ave. S., Edina, MN 55435. Authorized
to lend in MN, WI and IL. This is not an offer to enter an
interest rate lock-in agreement. Not intended to be a solicitation
in any other state. Prices and programs are subject to
change without notice.
Interest rates are at all
time lows, inventory is high
and money is available to lend!
Now is the perfect time to buy.
CALL TODAY!
A tax credit is available for 1st time homebuyers
under the American Recovery and Reinvestment Act
of 2009. If you buy a home between January 1, 2009
and December 1, 2009, you may be eligible to receive a
tax credit for 10% of the purchase price of your home
up to $8000. Program highlights include:
· Any individual (and if married, their spouse) who has had
no ownership interest in a home during the last three years
is eligible
· Full credit for single taxpayers with incomes up to $75,000
($150,000 on a joint return); partial credit for income up to
$95,000 ($170,000 joint return)
· Available only for the purchase of a single family home,
townhome, condo, and new construction that will be used
as a principal residence
· If your home is sold before 3 years, the 1st time homebuyer
(who is now the seller) must pay the IRS the entire amount
of the tax credit at closing
· Homebuyers can reduce (or even eliminate) their income
tax liability for the year of purchase by claiming the credit
on their tax return.*
GREAT OPPORTUNITY TO
PURCHASE YOUR
DREAM HOME AND
POCKET SOME HUGE SAVINGS!
G O V E R N M E N T O F F E R S
$ 8 0 0 0 T A X C R E D I T T O
1 S T T I M E H O M E B U Y E R S !
Shona Namie 612.865.8070 Realtor
Scott Smith 612.327.8666 PHH Home Loans
Contact your PHH Home Loans Mortgage Consultant
for more information and a free same-day pre-approval:
Mortgage loans are subject to qualification, receipt of satisfactory appraisal
and verification of income, asset and debt information provided
by the seller. *Certain eligibility criteria must be met. Homebuyers
should consult their tax advisor for further details. Financing provided
by PHH Home Loans, 7550 France Ave. S., Edina, MN 55435. Authorized
to lend in MN, WI and IL. This is not an offer to enter an
interest rate lock-in agreement. Not intended to be a solicitation
in any other state. Prices and programs are subject to
change without notice.
Interest rates are at all
time lows, inventory is high
and money is available to lend!
Now is the perfect time to buy.
CALL TODAY!
A tax credit is available for 1st time homebuyers
under the American Recovery and Reinvestment Act
of 2009. If you buy a home between January 1, 2009
and December 1, 2009, you may be eligible to receive a
tax credit for 10% of the purchase price of your home
up to $8000. Program highlights include:
· Any individual (and if married, their spouse) who has had
no ownership interest in a home during the last three years
is eligible
· Full credit for single taxpayers with incomes up to $75,000
($150,000 on a joint return); partial credit for income up to
$95,000 ($170,000 joint return)
· Available only for the purchase of a single family home,
townhome, condo, and new construction that will be used
as a principal residence
· If your home is sold before 3 years, the 1st time homebuyer
(who is now the seller) must pay the IRS the entire amount
of the tax credit at closing
· Homebuyers can reduce (or even eliminate) their income
tax liability for the year of purchase by claiming the credit
on their tax return.*
Now is the time to buy!
Mortgage Rates Hold Low Levels, NOW IS THE GREATEST TIME TO BUY!!
The Fed announcement last week about an expansion of the mortgage-backed securities (MBS) purchase program pushed mortgage rates down to the lowest levels in decades, according to the weekly surveys from the Mortgage Bankers Association (MBA) and Freddie Mac. This week, mortgage rates held the improvement, ending nearly unchanged from last Friday.
The Treasury unveiled a major new program on Monday which will establish public/private partnerships to purchase up to $1 trillion in troubled assets from banks. The program was well received by investors, and the news produced a large rally in the stock market. Significant to the mortgage market, removing these assets from banks' balance sheets should free up room for additional investments in mortgage loans.
This week's news in the housing sector was positive for a change. February Existing Home Sales rose 5% from January. Inventories of unsold homes were at a 9.7-month supply, about the same as last month. February New Home Sales also rose 5%. The Mortgage Bankers Association (MBA) revised higher its forecast for loan originations in 2009. The MBA now expects $3.2 trillion in mortgage originations this year, up from about $2.0 trillion in its prior forecast. The increase was due to a projected rise in activity as a result of lower mortgage rates. With rates hovering at historical loans and with the affordability index running at all time highs, if you are in the market for a new home, NOW IS THE GREATEST TIME TO BUY that we have seen since purchase statistics have been gathered. Many people will look back at this moment in time and say “I wish I would have bought” during this time.
The Fed announcement last week about an expansion of the mortgage-backed securities (MBS) purchase program pushed mortgage rates down to the lowest levels in decades, according to the weekly surveys from the Mortgage Bankers Association (MBA) and Freddie Mac. This week, mortgage rates held the improvement, ending nearly unchanged from last Friday.
The Treasury unveiled a major new program on Monday which will establish public/private partnerships to purchase up to $1 trillion in troubled assets from banks. The program was well received by investors, and the news produced a large rally in the stock market. Significant to the mortgage market, removing these assets from banks' balance sheets should free up room for additional investments in mortgage loans.
This week's news in the housing sector was positive for a change. February Existing Home Sales rose 5% from January. Inventories of unsold homes were at a 9.7-month supply, about the same as last month. February New Home Sales also rose 5%. The Mortgage Bankers Association (MBA) revised higher its forecast for loan originations in 2009. The MBA now expects $3.2 trillion in mortgage originations this year, up from about $2.0 trillion in its prior forecast. The increase was due to a projected rise in activity as a result of lower mortgage rates. With rates hovering at historical loans and with the affordability index running at all time highs, if you are in the market for a new home, NOW IS THE GREATEST TIME TO BUY that we have seen since purchase statistics have been gathered. Many people will look back at this moment in time and say “I wish I would have bought” during this time.
First Time Homebuyer Tax Credit
FIRST-TIME HOMEBUYER TAX CREDIT
Frequently Asked Questions
In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to
purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale.
For 2009, Congress has increased the credit to $8000 and made several additional improvements. This
revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.
Tax Credits -- The Basics
1. What’s this new homebuyer tax incentive for 2009?
The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009
purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the
house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home
for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or
after January 1, 2009 and before December 1, 2009.
2. Who is eligible?
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had
any ownership interest in a home in the three years previous to the day of the 2009 purchase.
3. How does a tax credit work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s
income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and
make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has
been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax
return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax
due. ($9,500 - $8000 = $1500)
4. So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability
for the year is only $6000?
This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was
$6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference
between $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000) Most taxpayers
determine their tax liability by referring to tables that the IRS prepares each year.
5. How does withholding affect my tax credit and my refund?
A few examples are provided at the end of this document. There are several steps in this calculation, but
most income tax software programs are equipped to make that determination.
6. Is there an income restriction?
FIRST-TIME HOMEBUYER TAX
CREDIT
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her
income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the
credit if their income is no more than $75,000. Married couples who file a Joint return may have income
of no more than $150,000.
7. How is my “income” determined?
For most individuals, income is defined and calculated in the same manner as their Adjusted Gross
Income (AGI) on their 1040 income tax return. AGI includes items like wages, salaries, interest and
dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final
number that appears on the bottom line of the front page of an IRS Form 1040.
8. What if I worked abroad for part of the year?
Some individuals have earned income and/or receive housing allowances while working outside the US.
Their income will be adjusted to reflect those items to measure Modified Adjusted Gross Income
(MAGI). Their eligibility for the credit will be based on their MAGI.
9. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the
credit?
Not always. The credit phases-out between $75,000 - $95,000 for singles and $150,000 - $170,000 for
married filing joint. The closer a buyer comes to the maximum phase-out amount, the smaller the credit
will be. The law provides a formula to gradually withdraw the credit. Thus, the credit will disappear after
an individual’s income reaches $95,000 (single return) or $170,000 (joint return).
For example, if a married couple had income of $165,000, their credit would be reduced by 75% as
shown:
Couple’s income $165,000
Income limit 150,000
Excess income $15,000
The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the
fraction is the excess income amount ($15,000). The denominator is $20,000 (specified by the statute).
In this example, the disallowed portion of the credit is 75% of $8000, or $6000
($15,000/$20,000 = 75% x $8000 = $6000)
Stated another way, only 25% of the credit amount would be allowed.
In this example, the allowable credit would be $2000 (25% x $8000 = $2000)
10. What’s the definition of “principal residence?”
Generally, a principal residence is the home where an individual spends most of his/her time (generally
defined as more than 50%). It is also defined as “owner-occupied” housing. The term includes singlefamily
detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling.
Even some houseboats or manufactured homes count as principal residences.
11. Are there restrictions on the location of the property?
Yes. The home must be located in the United States. Property located outside the US is not eligible for
the credit.
12. Are there restrictions related to the financing for the mortgage on the property?
In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit.
Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible
for the $7500 credit if the financing was obtained by means of mortgage revenue bonds.) Now,
mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser. (Mortgage revenue
bonds are tax-exempt bonds issued by a state housing agency. Proceeds from the bonds must be used for
below market loans to qualified buyers.)
13. Do I have to repay the 2009 tax credit?
NO. There is no repayment for 2009 tax credits.
14. Do 2008 purchasers still have to repay their tax credit?
YES. The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed
the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return.
Some Practical Questions
15. How do I apply for the credit?
There is no pre-purchase authorization, application or similar approval process. All eligible purchasers
simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form
5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov.
16. So I can’t use the credit amount as part of my downpayment?
No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but
found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the
purchase and settlement phase of the transaction.
17. So there’s no way to get any cash flow benefits before I file my tax return?
Yes, there is. Any first-time homebuyers who believe they are eligible for all or part of the credit can
modify their income tax withholding (through their employers) or adjust their quarterly estimated tax
payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their
employer, follow the instructions on the schedules provided and give the completed Form W-4 back to
the employer. In many cases their withholding would decrease and their take-home pay would increase.
Those who make estimated tax payments would make similar adjustments.
Some “Real World” Examples
18. What if I purchase later this year but can’t get to settlement before December 1?
The credit is available for purchases before December 1, 2009. A home is considered as “purchased”
when all events have occurred that transfer the title from the seller to the new purchaser. Thus, closings
must occur before December 1, 2009 for purchases to be eligible for the credit.
19. I haven’t even filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to
get the benefit of the credit?
You’ll have a helpful choice that might speed up the process. Eligible homebuyers who make their
purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on
December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15,
2009. They actually have three filing options.
· If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on
the 2008 return due on April 15.
· They can extend their 2008 income-tax filing until as late as October 15, 2009. (The IRS grants
automatic extensions, but the taxpayer must file for the extension. See www.irs.gov for
instructions on how to obtain an extension.)
· If they have filed their 2008 return before they purchase the home, they may file an amended
2008 tax return on Form 1040X. (Form 1040X is available at www.irs.gov)
Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on
their 2009 return. Their 2009 tax return is due on April 15, 2010.
20. I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7500 tax
credit on my 2008 return as prior law had permitted. Am I restricted to just a $7500 credit?
No, you would qualify for the $8000 credit. Eligible purchasers who have already claimed the $7500
credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008
tax year. This amended return will enable them to obtain the additional $500 credit amount.
21. If I claim my 2009 $8000 credit on my 2008 tax return, will I have to repay the credit just as the
2008 credits are repaid?
No. Congress anticipated this confusion and has made specific provision so that there would be no
repayment of 2009 credits that are claimed on 2008 returns.
22. I made an eligible purchase of a principal residence in May 2008 and claimed the $7500 credit on
my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial
interest in the home this spring and move in. Will he qualify for the $8000 credit, as well?
No. Any purchase of a principal residence (or interest in a principal residence) from a related party such
as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother
are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from
you, even if he is a first-time homebuyer.
23. I live in the District of Columbia. If I qualify as a first-time homebuyer, can I use both the $5000
DC credit and the $8000 credit?
No; double dipping is not allowed. You would be eligible for only the $8000 credit. This will be an
advantage because of the higher credit amount, plus the eligibility requirements for the $8000 credit are
somewhat more easily satisfied than the DC credit.
24. I know there is no repayment requirement for the $8000 credit. Will I ever have to repay any of
the credit back to the government?
One situation does require a recapture payment back to the government. If you claim the credit but then
sell the property within 3 years of the date of purchase, you are required to pay back the full amount of
any credit, including any refund you received from it. A few exceptions apply. (See below, #24). Note
that this same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This
provision is designed as an anti-flipping rule.
25. What if I die or get divorced or my property is ruined in a natural disaster within the 3 years?
The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within
the first three years of ownership, there is no recapture. Special rules make adjustments for people who
sell homes as part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home
that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to
condemnation by eminent domain by an authorized agency) within the first three years.
26. I have a home under construction. Am I eligible for the credit?
Yes, so long as you actually occupy the home before December 1, 2009.
WITHHOLDING EXAMPLES:
Note: The impact of estimated tax payments would be the same.
Situation 1: Sally plans her withholding so that her withholding is as close as possible to what she
anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000.
She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit.
Result: Sally’s withholding satisfies her tax liability and reduces it to zero. She will receive a refund of
the full $8000.
Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments;
Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and
estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time
homebuyers and are eligible for the $8000 refundable tax credit.
Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for
a refund of $1200 ($11,000 - $9800 = $1200). Because they are eligible for the refundable tax credit as
well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit =
$9200)
Situation 3: Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint
return. When they file their income tax return, their combined withholding is $5000. However, their total
tax liability is $7200, generating an additional income tax liability of $2200 ($7200 - $5000). They also
qualify for the $8000 first-time homebuyer tax credit.
Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to
pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible
for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition,
they will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they owed penalties and/or
interest, that amount would reduce the refund.
Frequently Asked Questions
In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to
purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale.
For 2009, Congress has increased the credit to $8000 and made several additional improvements. This
revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.
Tax Credits -- The Basics
1. What’s this new homebuyer tax incentive for 2009?
The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009
purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the
house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home
for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or
after January 1, 2009 and before December 1, 2009.
2. Who is eligible?
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had
any ownership interest in a home in the three years previous to the day of the 2009 purchase.
3. How does a tax credit work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s
income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and
make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has
been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax
return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax
due. ($9,500 - $8000 = $1500)
4. So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability
for the year is only $6000?
This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was
$6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference
between $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000) Most taxpayers
determine their tax liability by referring to tables that the IRS prepares each year.
5. How does withholding affect my tax credit and my refund?
A few examples are provided at the end of this document. There are several steps in this calculation, but
most income tax software programs are equipped to make that determination.
6. Is there an income restriction?
FIRST-TIME HOMEBUYER TAX
CREDIT
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her
income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the
credit if their income is no more than $75,000. Married couples who file a Joint return may have income
of no more than $150,000.
7. How is my “income” determined?
For most individuals, income is defined and calculated in the same manner as their Adjusted Gross
Income (AGI) on their 1040 income tax return. AGI includes items like wages, salaries, interest and
dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final
number that appears on the bottom line of the front page of an IRS Form 1040.
8. What if I worked abroad for part of the year?
Some individuals have earned income and/or receive housing allowances while working outside the US.
Their income will be adjusted to reflect those items to measure Modified Adjusted Gross Income
(MAGI). Their eligibility for the credit will be based on their MAGI.
9. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the
credit?
Not always. The credit phases-out between $75,000 - $95,000 for singles and $150,000 - $170,000 for
married filing joint. The closer a buyer comes to the maximum phase-out amount, the smaller the credit
will be. The law provides a formula to gradually withdraw the credit. Thus, the credit will disappear after
an individual’s income reaches $95,000 (single return) or $170,000 (joint return).
For example, if a married couple had income of $165,000, their credit would be reduced by 75% as
shown:
Couple’s income $165,000
Income limit 150,000
Excess income $15,000
The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the
fraction is the excess income amount ($15,000). The denominator is $20,000 (specified by the statute).
In this example, the disallowed portion of the credit is 75% of $8000, or $6000
($15,000/$20,000 = 75% x $8000 = $6000)
Stated another way, only 25% of the credit amount would be allowed.
In this example, the allowable credit would be $2000 (25% x $8000 = $2000)
10. What’s the definition of “principal residence?”
Generally, a principal residence is the home where an individual spends most of his/her time (generally
defined as more than 50%). It is also defined as “owner-occupied” housing. The term includes singlefamily
detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling.
Even some houseboats or manufactured homes count as principal residences.
11. Are there restrictions on the location of the property?
Yes. The home must be located in the United States. Property located outside the US is not eligible for
the credit.
12. Are there restrictions related to the financing for the mortgage on the property?
In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit.
Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible
for the $7500 credit if the financing was obtained by means of mortgage revenue bonds.) Now,
mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser. (Mortgage revenue
bonds are tax-exempt bonds issued by a state housing agency. Proceeds from the bonds must be used for
below market loans to qualified buyers.)
13. Do I have to repay the 2009 tax credit?
NO. There is no repayment for 2009 tax credits.
14. Do 2008 purchasers still have to repay their tax credit?
YES. The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed
the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return.
Some Practical Questions
15. How do I apply for the credit?
There is no pre-purchase authorization, application or similar approval process. All eligible purchasers
simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form
5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov.
16. So I can’t use the credit amount as part of my downpayment?
No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but
found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the
purchase and settlement phase of the transaction.
17. So there’s no way to get any cash flow benefits before I file my tax return?
Yes, there is. Any first-time homebuyers who believe they are eligible for all or part of the credit can
modify their income tax withholding (through their employers) or adjust their quarterly estimated tax
payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their
employer, follow the instructions on the schedules provided and give the completed Form W-4 back to
the employer. In many cases their withholding would decrease and their take-home pay would increase.
Those who make estimated tax payments would make similar adjustments.
Some “Real World” Examples
18. What if I purchase later this year but can’t get to settlement before December 1?
The credit is available for purchases before December 1, 2009. A home is considered as “purchased”
when all events have occurred that transfer the title from the seller to the new purchaser. Thus, closings
must occur before December 1, 2009 for purchases to be eligible for the credit.
19. I haven’t even filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to
get the benefit of the credit?
You’ll have a helpful choice that might speed up the process. Eligible homebuyers who make their
purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on
December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15,
2009. They actually have three filing options.
· If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on
the 2008 return due on April 15.
· They can extend their 2008 income-tax filing until as late as October 15, 2009. (The IRS grants
automatic extensions, but the taxpayer must file for the extension. See www.irs.gov for
instructions on how to obtain an extension.)
· If they have filed their 2008 return before they purchase the home, they may file an amended
2008 tax return on Form 1040X. (Form 1040X is available at www.irs.gov)
Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on
their 2009 return. Their 2009 tax return is due on April 15, 2010.
20. I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7500 tax
credit on my 2008 return as prior law had permitted. Am I restricted to just a $7500 credit?
No, you would qualify for the $8000 credit. Eligible purchasers who have already claimed the $7500
credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008
tax year. This amended return will enable them to obtain the additional $500 credit amount.
21. If I claim my 2009 $8000 credit on my 2008 tax return, will I have to repay the credit just as the
2008 credits are repaid?
No. Congress anticipated this confusion and has made specific provision so that there would be no
repayment of 2009 credits that are claimed on 2008 returns.
22. I made an eligible purchase of a principal residence in May 2008 and claimed the $7500 credit on
my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial
interest in the home this spring and move in. Will he qualify for the $8000 credit, as well?
No. Any purchase of a principal residence (or interest in a principal residence) from a related party such
as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother
are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from
you, even if he is a first-time homebuyer.
23. I live in the District of Columbia. If I qualify as a first-time homebuyer, can I use both the $5000
DC credit and the $8000 credit?
No; double dipping is not allowed. You would be eligible for only the $8000 credit. This will be an
advantage because of the higher credit amount, plus the eligibility requirements for the $8000 credit are
somewhat more easily satisfied than the DC credit.
24. I know there is no repayment requirement for the $8000 credit. Will I ever have to repay any of
the credit back to the government?
One situation does require a recapture payment back to the government. If you claim the credit but then
sell the property within 3 years of the date of purchase, you are required to pay back the full amount of
any credit, including any refund you received from it. A few exceptions apply. (See below, #24). Note
that this same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This
provision is designed as an anti-flipping rule.
25. What if I die or get divorced or my property is ruined in a natural disaster within the 3 years?
The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within
the first three years of ownership, there is no recapture. Special rules make adjustments for people who
sell homes as part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home
that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to
condemnation by eminent domain by an authorized agency) within the first three years.
26. I have a home under construction. Am I eligible for the credit?
Yes, so long as you actually occupy the home before December 1, 2009.
WITHHOLDING EXAMPLES:
Note: The impact of estimated tax payments would be the same.
Situation 1: Sally plans her withholding so that her withholding is as close as possible to what she
anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000.
She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit.
Result: Sally’s withholding satisfies her tax liability and reduces it to zero. She will receive a refund of
the full $8000.
Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments;
Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and
estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time
homebuyers and are eligible for the $8000 refundable tax credit.
Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for
a refund of $1200 ($11,000 - $9800 = $1200). Because they are eligible for the refundable tax credit as
well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit =
$9200)
Situation 3: Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint
return. When they file their income tax return, their combined withholding is $5000. However, their total
tax liability is $7200, generating an additional income tax liability of $2200 ($7200 - $5000). They also
qualify for the $8000 first-time homebuyer tax credit.
Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to
pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible
for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition,
they will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they owed penalties and/or
interest, that amount would reduce the refund.
Tuesday, March 17, 2009
First Time Homebuyer Tax Credit
FIRST-TIME HOMEBUYER TAX CREDIT
Frequently Asked Questions
In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to
purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale.
For 2009, Congress has increased the credit to $8000 and made several additional improvements. This
revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.
Tax Credits -- The Basics
1. What’s this new homebuyer tax incentive for 2009?
The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009
purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the
house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home
for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or
after January 1, 2009 and before December 1, 2009.
2. Who is eligible?
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had
any ownership interest in a home in the three years previous to the day of the 2009 purchase.
3. How does a tax credit work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s
income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and
make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has
been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax
return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax
due. ($9,500 - $8000 = $1500)
4. So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability
for the year is only $6000?
This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was
$6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference
between $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000) Most taxpayers
determine their tax liability by referring to tables that the IRS prepares each year.
5. How does withholding affect my tax credit and my refund?
A few examples are provided at the end of this document. There are several steps in this calculation, but
most income tax software programs are equipped to make that determination.
6. Is there an income restriction?
FIRST-TIME HOMEBUYER TAX
CREDIT
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her
income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the
credit if their income is no more than $75,000. Married couples who file a Joint return may have income
of no more than $150,000.
7. How is my “income” determined?
For most individuals, income is defined and calculated in the same manner as their Adjusted Gross
Income (AGI) on their 1040 income tax return. AGI includes items like wages, salaries, interest and
dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final
number that appears on the bottom line of the front page of an IRS Form 1040.
8. What if I worked abroad for part of the year?
Some individuals have earned income and/or receive housing allowances while working outside the US.
Their income will be adjusted to reflect those items to measure Modified Adjusted Gross Income
(MAGI). Their eligibility for the credit will be based on their MAGI.
9. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the
credit?
Not always. The credit phases-out between $75,000 - $95,000 for singles and $150,000 - $170,000 for
married filing joint. The closer a buyer comes to the maximum phase-out amount, the smaller the credit
will be. The law provides a formula to gradually withdraw the credit. Thus, the credit will disappear after
an individual’s income reaches $95,000 (single return) or $170,000 (joint return).
For example, if a married couple had income of $165,000, their credit would be reduced by 75% as
shown:
Couple’s income $165,000
Income limit 150,000
Excess income $15,000
The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the
fraction is the excess income amount ($15,000). The denominator is $20,000 (specified by the statute).
In this example, the disallowed portion of the credit is 75% of $8000, or $6000
($15,000/$20,000 = 75% x $8000 = $6000)
Stated another way, only 25% of the credit amount would be allowed.
In this example, the allowable credit would be $2000 (25% x $8000 = $2000)
10. What’s the definition of “principal residence?”
Generally, a principal residence is the home where an individual spends most of his/her time (generally
defined as more than 50%). It is also defined as “owner-occupied” housing. The term includes singlefamily
detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling.
Even some houseboats or manufactured homes count as principal residences.
11. Are there restrictions on the location of the property?
Yes. The home must be located in the United States. Property located outside the US is not eligible for
the credit.
12. Are there restrictions related to the financing for the mortgage on the property?
In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit.
Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible
for the $7500 credit if the financing was obtained by means of mortgage revenue bonds.) Now,
mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser. (Mortgage revenue
bonds are tax-exempt bonds issued by a state housing agency. Proceeds from the bonds must be used for
below market loans to qualified buyers.)
13. Do I have to repay the 2009 tax credit?
NO. There is no repayment for 2009 tax credits.
14. Do 2008 purchasers still have to repay their tax credit?
YES. The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed
the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return.
Some Practical Questions
15. How do I apply for the credit?
There is no pre-purchase authorization, application or similar approval process. All eligible purchasers
simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form
5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov.
16. So I can’t use the credit amount as part of my downpayment?
No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but
found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the
purchase and settlement phase of the transaction.
17. So there’s no way to get any cash flow benefits before I file my tax return?
Yes, there is. Any first-time homebuyers who believe they are eligible for all or part of the credit can
modify their income tax withholding (through their employers) or adjust their quarterly estimated tax
payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their
employer, follow the instructions on the schedules provided and give the completed Form W-4 back to
the employer. In many cases their withholding would decrease and their take-home pay would increase.
Those who make estimated tax payments would make similar adjustments.
Some “Real World” Examples
18. What if I purchase later this year but can’t get to settlement before December 1?
The credit is available for purchases before December 1, 2009. A home is considered as “purchased”
when all events have occurred that transfer the title from the seller to the new purchaser. Thus, closings
must occur before December 1, 2009 for purchases to be eligible for the credit.
19. I haven’t even filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to
get the benefit of the credit?
You’ll have a helpful choice that might speed up the process. Eligible homebuyers who make their
purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on
December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15,
2009. They actually have three filing options.
· If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on
the 2008 return due on April 15.
· They can extend their 2008 income-tax filing until as late as October 15, 2009. (The IRS grants
automatic extensions, but the taxpayer must file for the extension. See www.irs.gov for
instructions on how to obtain an extension.)
· If they have filed their 2008 return before they purchase the home, they may file an amended
2008 tax return on Form 1040X. (Form 1040X is available at www.irs.gov)
Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on
their 2009 return. Their 2009 tax return is due on April 15, 2010.
20. I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7500 tax
credit on my 2008 return as prior law had permitted. Am I restricted to just a $7500 credit?
No, you would qualify for the $8000 credit. Eligible purchasers who have already claimed the $7500
credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008
tax year. This amended return will enable them to obtain the additional $500 credit amount.
21. If I claim my 2009 $8000 credit on my 2008 tax return, will I have to repay the credit just as the
2008 credits are repaid?
No. Congress anticipated this confusion and has made specific provision so that there would be no
repayment of 2009 credits that are claimed on 2008 returns.
22. I made an eligible purchase of a principal residence in May 2008 and claimed the $7500 credit on
my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial
interest in the home this spring and move in. Will he qualify for the $8000 credit, as well?
No. Any purchase of a principal residence (or interest in a principal residence) from a related party such
as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother
are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from
you, even if he is a first-time homebuyer.
23. I live in the District of Columbia. If I qualify as a first-time homebuyer, can I use both the $5000
DC credit and the $8000 credit?
No; double dipping is not allowed. You would be eligible for only the $8000 credit. This will be an
advantage because of the higher credit amount, plus the eligibility requirements for the $8000 credit are
somewhat more easily satisfied than the DC credit.
24. I know there is no repayment requirement for the $8000 credit. Will I ever have to repay any of
the credit back to the government?
One situation does require a recapture payment back to the government. If you claim the credit but then
sell the property within 3 years of the date of purchase, you are required to pay back the full amount of
any credit, including any refund you received from it. A few exceptions apply. (See below, #24). Note
that this same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This
provision is designed as an anti-flipping rule.
25. What if I die or get divorced or my property is ruined in a natural disaster within the 3 years?
The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within
the first three years of ownership, there is no recapture. Special rules make adjustments for people who
sell homes as part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home
that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to
condemnation by eminent domain by an authorized agency) within the first three years.
26. I have a home under construction. Am I eligible for the credit?
Yes, so long as you actually occupy the home before December 1, 2009.
WITHHOLDING EXAMPLES:
Note: The impact of estimated tax payments would be the same.
Situation 1: Sally plans her withholding so that her withholding is as close as possible to what she
anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000.
She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit.
Result: Sally’s withholding satisfies her tax liability and reduces it to zero. She will receive a refund of
the full $8000.
Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments;
Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and
estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time
homebuyers and are eligible for the $8000 refundable tax credit.
Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for
a refund of $1200 ($11,000 - $9800 = $1200). Because they are eligible for the refundable tax credit as
well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit =
$9200)
Situation 3: Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint
return. When they file their income tax return, their combined withholding is $5000. However, their total
tax liability is $7200, generating an additional income tax liability of $2200 ($7200 - $5000). They also
qualify for the $8000 first-time homebuyer tax credit.
Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to
pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible
for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition,
they will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they owed penalties and/or
interest, that amount would reduce the refund.
Frequently Asked Questions
In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to
purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale.
For 2009, Congress has increased the credit to $8000 and made several additional improvements. This
revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.
Tax Credits -- The Basics
1. What’s this new homebuyer tax incentive for 2009?
The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009
purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the
house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home
for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or
after January 1, 2009 and before December 1, 2009.
2. Who is eligible?
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had
any ownership interest in a home in the three years previous to the day of the 2009 purchase.
3. How does a tax credit work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s
income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and
make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has
been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax
return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax
due. ($9,500 - $8000 = $1500)
4. So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability
for the year is only $6000?
This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was
$6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference
between $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000) Most taxpayers
determine their tax liability by referring to tables that the IRS prepares each year.
5. How does withholding affect my tax credit and my refund?
A few examples are provided at the end of this document. There are several steps in this calculation, but
most income tax software programs are equipped to make that determination.
6. Is there an income restriction?
FIRST-TIME HOMEBUYER TAX
CREDIT
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her
income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the
credit if their income is no more than $75,000. Married couples who file a Joint return may have income
of no more than $150,000.
7. How is my “income” determined?
For most individuals, income is defined and calculated in the same manner as their Adjusted Gross
Income (AGI) on their 1040 income tax return. AGI includes items like wages, salaries, interest and
dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final
number that appears on the bottom line of the front page of an IRS Form 1040.
8. What if I worked abroad for part of the year?
Some individuals have earned income and/or receive housing allowances while working outside the US.
Their income will be adjusted to reflect those items to measure Modified Adjusted Gross Income
(MAGI). Their eligibility for the credit will be based on their MAGI.
9. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the
credit?
Not always. The credit phases-out between $75,000 - $95,000 for singles and $150,000 - $170,000 for
married filing joint. The closer a buyer comes to the maximum phase-out amount, the smaller the credit
will be. The law provides a formula to gradually withdraw the credit. Thus, the credit will disappear after
an individual’s income reaches $95,000 (single return) or $170,000 (joint return).
For example, if a married couple had income of $165,000, their credit would be reduced by 75% as
shown:
Couple’s income $165,000
Income limit 150,000
Excess income $15,000
The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the
fraction is the excess income amount ($15,000). The denominator is $20,000 (specified by the statute).
In this example, the disallowed portion of the credit is 75% of $8000, or $6000
($15,000/$20,000 = 75% x $8000 = $6000)
Stated another way, only 25% of the credit amount would be allowed.
In this example, the allowable credit would be $2000 (25% x $8000 = $2000)
10. What’s the definition of “principal residence?”
Generally, a principal residence is the home where an individual spends most of his/her time (generally
defined as more than 50%). It is also defined as “owner-occupied” housing. The term includes singlefamily
detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling.
Even some houseboats or manufactured homes count as principal residences.
11. Are there restrictions on the location of the property?
Yes. The home must be located in the United States. Property located outside the US is not eligible for
the credit.
12. Are there restrictions related to the financing for the mortgage on the property?
In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit.
Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible
for the $7500 credit if the financing was obtained by means of mortgage revenue bonds.) Now,
mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser. (Mortgage revenue
bonds are tax-exempt bonds issued by a state housing agency. Proceeds from the bonds must be used for
below market loans to qualified buyers.)
13. Do I have to repay the 2009 tax credit?
NO. There is no repayment for 2009 tax credits.
14. Do 2008 purchasers still have to repay their tax credit?
YES. The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed
the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return.
Some Practical Questions
15. How do I apply for the credit?
There is no pre-purchase authorization, application or similar approval process. All eligible purchasers
simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form
5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov.
16. So I can’t use the credit amount as part of my downpayment?
No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but
found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the
purchase and settlement phase of the transaction.
17. So there’s no way to get any cash flow benefits before I file my tax return?
Yes, there is. Any first-time homebuyers who believe they are eligible for all or part of the credit can
modify their income tax withholding (through their employers) or adjust their quarterly estimated tax
payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their
employer, follow the instructions on the schedules provided and give the completed Form W-4 back to
the employer. In many cases their withholding would decrease and their take-home pay would increase.
Those who make estimated tax payments would make similar adjustments.
Some “Real World” Examples
18. What if I purchase later this year but can’t get to settlement before December 1?
The credit is available for purchases before December 1, 2009. A home is considered as “purchased”
when all events have occurred that transfer the title from the seller to the new purchaser. Thus, closings
must occur before December 1, 2009 for purchases to be eligible for the credit.
19. I haven’t even filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to
get the benefit of the credit?
You’ll have a helpful choice that might speed up the process. Eligible homebuyers who make their
purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on
December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15,
2009. They actually have three filing options.
· If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on
the 2008 return due on April 15.
· They can extend their 2008 income-tax filing until as late as October 15, 2009. (The IRS grants
automatic extensions, but the taxpayer must file for the extension. See www.irs.gov for
instructions on how to obtain an extension.)
· If they have filed their 2008 return before they purchase the home, they may file an amended
2008 tax return on Form 1040X. (Form 1040X is available at www.irs.gov)
Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on
their 2009 return. Their 2009 tax return is due on April 15, 2010.
20. I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7500 tax
credit on my 2008 return as prior law had permitted. Am I restricted to just a $7500 credit?
No, you would qualify for the $8000 credit. Eligible purchasers who have already claimed the $7500
credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008
tax year. This amended return will enable them to obtain the additional $500 credit amount.
21. If I claim my 2009 $8000 credit on my 2008 tax return, will I have to repay the credit just as the
2008 credits are repaid?
No. Congress anticipated this confusion and has made specific provision so that there would be no
repayment of 2009 credits that are claimed on 2008 returns.
22. I made an eligible purchase of a principal residence in May 2008 and claimed the $7500 credit on
my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial
interest in the home this spring and move in. Will he qualify for the $8000 credit, as well?
No. Any purchase of a principal residence (or interest in a principal residence) from a related party such
as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother
are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from
you, even if he is a first-time homebuyer.
23. I live in the District of Columbia. If I qualify as a first-time homebuyer, can I use both the $5000
DC credit and the $8000 credit?
No; double dipping is not allowed. You would be eligible for only the $8000 credit. This will be an
advantage because of the higher credit amount, plus the eligibility requirements for the $8000 credit are
somewhat more easily satisfied than the DC credit.
24. I know there is no repayment requirement for the $8000 credit. Will I ever have to repay any of
the credit back to the government?
One situation does require a recapture payment back to the government. If you claim the credit but then
sell the property within 3 years of the date of purchase, you are required to pay back the full amount of
any credit, including any refund you received from it. A few exceptions apply. (See below, #24). Note
that this same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This
provision is designed as an anti-flipping rule.
25. What if I die or get divorced or my property is ruined in a natural disaster within the 3 years?
The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within
the first three years of ownership, there is no recapture. Special rules make adjustments for people who
sell homes as part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home
that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to
condemnation by eminent domain by an authorized agency) within the first three years.
26. I have a home under construction. Am I eligible for the credit?
Yes, so long as you actually occupy the home before December 1, 2009.
WITHHOLDING EXAMPLES:
Note: The impact of estimated tax payments would be the same.
Situation 1: Sally plans her withholding so that her withholding is as close as possible to what she
anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000.
She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit.
Result: Sally’s withholding satisfies her tax liability and reduces it to zero. She will receive a refund of
the full $8000.
Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments;
Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and
estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time
homebuyers and are eligible for the $8000 refundable tax credit.
Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for
a refund of $1200 ($11,000 - $9800 = $1200). Because they are eligible for the refundable tax credit as
well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit =
$9200)
Situation 3: Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint
return. When they file their income tax return, their combined withholding is $5000. However, their total
tax liability is $7200, generating an additional income tax liability of $2200 ($7200 - $5000). They also
qualify for the $8000 first-time homebuyer tax credit.
Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to
pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible
for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition,
they will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they owed penalties and/or
interest, that amount would reduce the refund.
Tuesday, February 10, 2009
Under the Senate's stimulus bill, homebuyers could receive a $15,000 tax credit if they purchase within a year.
$15,000 for homebuyers!
February 10, 2009: 7:10 AM ET
NEW YORK (CNNMoney.com) -- If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.
The Senate's version of the plan sweetened the $7,500 homebuyer tax credit provision proposed by the House, doubling it to $15,000 or 10% of the home's purchase price (whichever is lower). What's more, the credit applies to all buyers - not just those purchasing their first homes.
The Senate credit also has no income limits. The House version, in comparison, allows only those with incomes up to $75,000 for singles and $150,000 for couples to qualify for the full amount. (In that bill, those earning up to $95,000 and $170,000, respectively, can qualify for a partial credit.)
Also, unlike the tax credit passed last summer as part of the Housing Recovery Act, this one does not have to be repaid. The old credit acted more like a no-interest loan than a true credit and, as a result, had little impact on home sales.
"This will bring pent-up demand back into the marketplace," said Jerry Howard, president of the National Association of Homebuilders. "We believe you can't effectively stimulate the economy until you find a way to stop the downward movement of home values."
The National Association of Realtors estimated the Senate measure will attract an additional one million buyers who would otherwise have remained on the sidelines. "Consumers will view the tax credit as they do lower home prices," said Lawrence Yun, NAR's chief economist. "And more people will qualify [for buying homes]."
That, combined with low mortgage rates, could help reverse the sentiment of many potential homebuyers who are waiting for prices to fall further before they act.
"Consumers are saying, 'Why buy now?' With money on the table, more would jump at the opportunity," said Yun.
The differences
The Senate tax credit, unlike the House proposal, is also non-refundable. That means, if your tax obligation is less than the credit, you only receive an amount equal to your tax bill, no more. The average taxpayer pays considerably less than $15,000 a year in federal income taxes and so would not qualify for the entire credit. For example, if your total tax bill is $8,000, your debt would be zeroed out, but you wouldn't receive the remaining $7,000 as a refund.
But homebuyers can take the credit spread out over two tax years. So in the above example, the taxpayer could claim the remaining $7,000 on next year's taxes.
Another difference is that the Senate credit is good for one year following its enactment and is not retroactive. Homebuyers who make purchases before the credit takes effect cannot claim it; under the House bill, they can because the credit is retroactive to the start of 2009 and expires at the end of June. In both bills, buyers must live in the home for two years or forfeit the credit.
Limited stimulus
Still, many critics doubt that the credit will have as deep of an impact as Yun and Howard predict - and some have been scathing in their critiques. "This is the biggest, most hare-brained scheme," said Dean Baker, the co-director of the Center for Economic and Policy Research. "If this passes, I'll be amazed."
One major objection is that the credit is available to existing homeowners, who would essentially be selling house A to buy house B and thus have no stimulus impact on the economy. Baker called it a "house-flipping subsidy."
Plus, he added, it gives a credit to others who would buy anyway.
"I actually like this bill," Baker said sarcastically, "because, with home prices in Washington plummeting, I'm considering buying a house."
He also raised the possibility that it could be gamed: What's to prevent two people from selling their houses to each other, in name only, just to claim the $15,000 each?
The Tax Policy Center gave the credit a mediocre C+ grade in its Tax Stimulus Report Card.
TPC spokesman Bob Williams agrees that the credit is poorly targeted and does nothing to address the issue that's holding most buyers back: suspicion that prices will keep falling.
"As long as people are uncertain about what markets are going to do, this won't help much," he said. "It's not enough to change that."
If approved, applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. It can be claimed on 2008 returns; taxpayers who have already completed their returns can file amended returns for 2008 that claim the credit.
Once the Senate passes its stimulus bill, which is expected to happen on Tuesday, a committee will meet with House members to reconcile the differences between the two bills.
Jaret Seiberg, who has been analyzing the stimulus package for the Stanford Group, said the odds favor the Senate provisions because they enjoy broad support among lenders, home builders and lawmakers.
"You have to have something in the stimulus bill to help housing, and there's very little else in there that's on point," said Seiberg.
February 10, 2009: 7:10 AM ET
NEW YORK (CNNMoney.com) -- If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.
The Senate's version of the plan sweetened the $7,500 homebuyer tax credit provision proposed by the House, doubling it to $15,000 or 10% of the home's purchase price (whichever is lower). What's more, the credit applies to all buyers - not just those purchasing their first homes.
The Senate credit also has no income limits. The House version, in comparison, allows only those with incomes up to $75,000 for singles and $150,000 for couples to qualify for the full amount. (In that bill, those earning up to $95,000 and $170,000, respectively, can qualify for a partial credit.)
Also, unlike the tax credit passed last summer as part of the Housing Recovery Act, this one does not have to be repaid. The old credit acted more like a no-interest loan than a true credit and, as a result, had little impact on home sales.
"This will bring pent-up demand back into the marketplace," said Jerry Howard, president of the National Association of Homebuilders. "We believe you can't effectively stimulate the economy until you find a way to stop the downward movement of home values."
The National Association of Realtors estimated the Senate measure will attract an additional one million buyers who would otherwise have remained on the sidelines. "Consumers will view the tax credit as they do lower home prices," said Lawrence Yun, NAR's chief economist. "And more people will qualify [for buying homes]."
That, combined with low mortgage rates, could help reverse the sentiment of many potential homebuyers who are waiting for prices to fall further before they act.
"Consumers are saying, 'Why buy now?' With money on the table, more would jump at the opportunity," said Yun.
The differences
The Senate tax credit, unlike the House proposal, is also non-refundable. That means, if your tax obligation is less than the credit, you only receive an amount equal to your tax bill, no more. The average taxpayer pays considerably less than $15,000 a year in federal income taxes and so would not qualify for the entire credit. For example, if your total tax bill is $8,000, your debt would be zeroed out, but you wouldn't receive the remaining $7,000 as a refund.
But homebuyers can take the credit spread out over two tax years. So in the above example, the taxpayer could claim the remaining $7,000 on next year's taxes.
Another difference is that the Senate credit is good for one year following its enactment and is not retroactive. Homebuyers who make purchases before the credit takes effect cannot claim it; under the House bill, they can because the credit is retroactive to the start of 2009 and expires at the end of June. In both bills, buyers must live in the home for two years or forfeit the credit.
Limited stimulus
Still, many critics doubt that the credit will have as deep of an impact as Yun and Howard predict - and some have been scathing in their critiques. "This is the biggest, most hare-brained scheme," said Dean Baker, the co-director of the Center for Economic and Policy Research. "If this passes, I'll be amazed."
One major objection is that the credit is available to existing homeowners, who would essentially be selling house A to buy house B and thus have no stimulus impact on the economy. Baker called it a "house-flipping subsidy."
Plus, he added, it gives a credit to others who would buy anyway.
"I actually like this bill," Baker said sarcastically, "because, with home prices in Washington plummeting, I'm considering buying a house."
He also raised the possibility that it could be gamed: What's to prevent two people from selling their houses to each other, in name only, just to claim the $15,000 each?
The Tax Policy Center gave the credit a mediocre C+ grade in its Tax Stimulus Report Card.
TPC spokesman Bob Williams agrees that the credit is poorly targeted and does nothing to address the issue that's holding most buyers back: suspicion that prices will keep falling.
"As long as people are uncertain about what markets are going to do, this won't help much," he said. "It's not enough to change that."
If approved, applying for the credit will be easy - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. It can be claimed on 2008 returns; taxpayers who have already completed their returns can file amended returns for 2008 that claim the credit.
Once the Senate passes its stimulus bill, which is expected to happen on Tuesday, a committee will meet with House members to reconcile the differences between the two bills.
Jaret Seiberg, who has been analyzing the stimulus package for the Stanford Group, said the odds favor the Senate provisions because they enjoy broad support among lenders, home builders and lawmakers.
"You have to have something in the stimulus bill to help housing, and there's very little else in there that's on point," said Seiberg.
Wednesday, February 4, 2009
Issue #1: America's Money Crisis
Homebuyers get a bonus in the stimulus bill
First time buyers could receive a $7,500 tax credit if they purchase soon.
NEW YORK (CNNMoney.com) -- If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.
Among its many provisions is a $7,500 tax credit for first time home buyers. The House passed the $819 billion stimulus plan, including this tax credit, in a vote late Wednesday. The Senate may vote on its version of the bill some time next week.
Technically, the stimulus bill is actually changing the terms of the $7,500 tax credit that was issued as a part of the Housing Recovery Act, which Congress passed last summer. That legislation required that the tax credit be repaid over 15 years, making it more of a no-interest loan. Not surprisingly, the measure had little impact on the market. The stimulus bill now under consideration would make that tax credit a true credit that doesn't need to be repaid.
Many in the housing industry believe this credit could do a lot to jump start the moribund housing market.
"Our economists have studied the effect [of the credit] and they say there could be a 10% increase in home sales if it's implemented," said Mary Trupo, a spokeswoman for the National Association of Realtors. "It gives people who are sitting on the fence or who have inadequate funds for closing costs an incentive to act now."
A 10% increase would yield an extra half million sales this year.
Who qualifies
To be eligible, buyers cannot have owned a home for the past three years, and the new home has to be used as a primary residence. The credit phases out as income rises above $75,000 for singles and $150,000 for couples, and disappears entirely at $95,000 and $170,000, respectively.
Applying for it is easy, or at least as easy as doing your income taxes. Just claim it on your return. That's it. No other forms or papers have to be filed.
Both the Senate and the House versions of the new act remove the requirement that buyers repay the credit. The Senate bill applies retroactively to any purchase completed between January 1, 2009 and the end of August. The House version is also retroactive to the start of the year, and expires at the end of June. As long as buyers don't sell for at least 36 months, they keep the money.
And the credit is refundable, meaning that it can be claimed even if the amount of the credit earned exceeds the buyer's tax liability. So even if your total tax bill comes to just $5,000, you can still qualify for a full $7,500 refund.
The housing industry has been pushing this idea for many months, arguing that first-time homebuyers are the key to boosting home sales. First time buyers who purchase from existing homeowners free those sellers to trade up to bigger, better houses.
Buyers beware
But the credit has its drawbacks, according to Bob Williams, a spokesman for the Tax Policy Center, which gave it a mediocre C+ grade in its Tax Stimulus Report Card.
Williams argues that the credit is poorly targeted because it goes to every first-time buyer, not just the ones who wouldn't buy without it. So, it merely provides a windfall for many people who would have purchased anyway. (See correction, below).
And in the end, a $7,500 tax credit, regardless of the details, does nothing to address the issue that's holding most buyers back - the suspicion that prices are going to keep falling.
"As long as people are uncertain about what markets are going to do, this won't help much," said Williams. "It's not enough to change that."
The industry would like to make the tax credit stronger by making it available to all homebuyers, not just first-timers. And it's pushing to have the credit last through the end of the year, at least.
"By the time it's implemented," said Trupo, "there could be very few months left to act."
An earlier version of this story incorrectly stated that the tax credit for a home purchased in 2009 could only be taken off of 2009 taxes. However, homebuyers can choose to take the credit for 2008, according to the IRS. Even if they buy a home after they've filed their 2008 taxes, they can file an amended return.
First Published: January 29, 2009: 4:45 AM ET
Homebuyers get a bonus in the stimulus bill
First time buyers could receive a $7,500 tax credit if they purchase soon.
NEW YORK (CNNMoney.com) -- If you're thinking of buying a home, there could be a big bonus for you in the economic stimulus bill that's now before Congress.
Among its many provisions is a $7,500 tax credit for first time home buyers. The House passed the $819 billion stimulus plan, including this tax credit, in a vote late Wednesday. The Senate may vote on its version of the bill some time next week.
Technically, the stimulus bill is actually changing the terms of the $7,500 tax credit that was issued as a part of the Housing Recovery Act, which Congress passed last summer. That legislation required that the tax credit be repaid over 15 years, making it more of a no-interest loan. Not surprisingly, the measure had little impact on the market. The stimulus bill now under consideration would make that tax credit a true credit that doesn't need to be repaid.
Many in the housing industry believe this credit could do a lot to jump start the moribund housing market.
"Our economists have studied the effect [of the credit] and they say there could be a 10% increase in home sales if it's implemented," said Mary Trupo, a spokeswoman for the National Association of Realtors. "It gives people who are sitting on the fence or who have inadequate funds for closing costs an incentive to act now."
A 10% increase would yield an extra half million sales this year.
Who qualifies
To be eligible, buyers cannot have owned a home for the past three years, and the new home has to be used as a primary residence. The credit phases out as income rises above $75,000 for singles and $150,000 for couples, and disappears entirely at $95,000 and $170,000, respectively.
Applying for it is easy, or at least as easy as doing your income taxes. Just claim it on your return. That's it. No other forms or papers have to be filed.
Both the Senate and the House versions of the new act remove the requirement that buyers repay the credit. The Senate bill applies retroactively to any purchase completed between January 1, 2009 and the end of August. The House version is also retroactive to the start of the year, and expires at the end of June. As long as buyers don't sell for at least 36 months, they keep the money.
And the credit is refundable, meaning that it can be claimed even if the amount of the credit earned exceeds the buyer's tax liability. So even if your total tax bill comes to just $5,000, you can still qualify for a full $7,500 refund.
The housing industry has been pushing this idea for many months, arguing that first-time homebuyers are the key to boosting home sales. First time buyers who purchase from existing homeowners free those sellers to trade up to bigger, better houses.
Buyers beware
But the credit has its drawbacks, according to Bob Williams, a spokesman for the Tax Policy Center, which gave it a mediocre C+ grade in its Tax Stimulus Report Card.
Williams argues that the credit is poorly targeted because it goes to every first-time buyer, not just the ones who wouldn't buy without it. So, it merely provides a windfall for many people who would have purchased anyway. (See correction, below).
And in the end, a $7,500 tax credit, regardless of the details, does nothing to address the issue that's holding most buyers back - the suspicion that prices are going to keep falling.
"As long as people are uncertain about what markets are going to do, this won't help much," said Williams. "It's not enough to change that."
The industry would like to make the tax credit stronger by making it available to all homebuyers, not just first-timers. And it's pushing to have the credit last through the end of the year, at least.
"By the time it's implemented," said Trupo, "there could be very few months left to act."
An earlier version of this story incorrectly stated that the tax credit for a home purchased in 2009 could only be taken off of 2009 taxes. However, homebuyers can choose to take the credit for 2008, according to the IRS. Even if they buy a home after they've filed their 2008 taxes, they can file an amended return.
First Published: January 29, 2009: 4:45 AM ET
Monday, January 26, 2009
Saturday, January 17, 2009
Optimism heading into 2009!
January 15, 2009
Twin Cities Housing Market Makes Big Changes in 2008
After two-plus years of a faltering market, a recent upswing in Twin Cities homes sales during the second half of 2008 is cause for some measured optimism heading into 2009. In the Twin Cities 13-county metro area, total pending sales for 2008 ended at 44,067, up 1.2 percent from 2007. This is the first year-over-year increase in pending sales since 2004. There were 38,746 closed home sales in 2008, down only 3.5 percent from 2007.
In the second half of the year, sales picked up momentum and haven't let up since due to tumbling mortgage rates and increased affordability. Since July, there have been 15.7 percent more pending sales than there were during the same time period last year, and the most recent month saw a year-over-year increase of almost 30 percent.
Home prices continued to decline, as expected. The overall 2008 median sales price was $195,000, down 13.3 percent from last year's mark of $225,000.
Reasons for this decline can be found by dissecting two unique segments in today's housing market: lender-mediated and traditional. In 2008, the median sales price of lender-mediated foreclosure and short sale properties was $145,000, a drop of 13.4 percent from 2007. The median sales price for traditional properties was $223,000, which was a much quieter decline of 4.1 percent from last year. In all of 2008, 31.7 percent of closed sales in the region were lender-mediated, up from 10.4 percent in 2007.
The number of new listings on the market during 2008 decreased by 10.9 percent compared to last year, a drop of over 10,000 listings from last year and the lowest showing since 2003. This has helped stem the tide of oversupply our market has been experiencing in recent years.
The number of new foreclosure and short sale listings in the fourth quarter of 2008 was actually 4.3 percent lower than the third quarter, which is the first downward quarterly movement in new lender-mediated listings since 2003.
Twin Cities Housing Market Makes Big Changes in 2008
After two-plus years of a faltering market, a recent upswing in Twin Cities homes sales during the second half of 2008 is cause for some measured optimism heading into 2009. In the Twin Cities 13-county metro area, total pending sales for 2008 ended at 44,067, up 1.2 percent from 2007. This is the first year-over-year increase in pending sales since 2004. There were 38,746 closed home sales in 2008, down only 3.5 percent from 2007.
In the second half of the year, sales picked up momentum and haven't let up since due to tumbling mortgage rates and increased affordability. Since July, there have been 15.7 percent more pending sales than there were during the same time period last year, and the most recent month saw a year-over-year increase of almost 30 percent.
Home prices continued to decline, as expected. The overall 2008 median sales price was $195,000, down 13.3 percent from last year's mark of $225,000.
Reasons for this decline can be found by dissecting two unique segments in today's housing market: lender-mediated and traditional. In 2008, the median sales price of lender-mediated foreclosure and short sale properties was $145,000, a drop of 13.4 percent from 2007. The median sales price for traditional properties was $223,000, which was a much quieter decline of 4.1 percent from last year. In all of 2008, 31.7 percent of closed sales in the region were lender-mediated, up from 10.4 percent in 2007.
The number of new listings on the market during 2008 decreased by 10.9 percent compared to last year, a drop of over 10,000 listings from last year and the lowest showing since 2003. This has helped stem the tide of oversupply our market has been experiencing in recent years.
The number of new foreclosure and short sale listings in the fourth quarter of 2008 was actually 4.3 percent lower than the third quarter, which is the first downward quarterly movement in new lender-mediated listings since 2003.
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