How the homebuyer tax credit works

How the homebuyer tax credit works


Sources: National Association of Home Builders and the Internal Revenue Service
Published: Sun, Aug. 09, 2009 02:00AM


Are you considering a leap to homeownership? Here is some information about the tax credit to help you with your decision.
Q: Who is eligible? Anyone who has not owned a home for the previous three years. The home must be purchased on or after Jan. 1 and before Dec. 1, 2009. For the purposes of the tax credit, the purchase date is when closing occurs and the title to the property transfers.
Q: How is the amount of the tax credit determined? The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $8,000.
Q: Are there income limits? Yes. The limit for single taxpayers is $75,000; $150,000 for married taxpayers filing a joint return. You cannot have a modified adjusted gross income above $95,000 (single) or $170,000 (married), and the credit is reduced proportionally for taxpayers whose modified adjusted gross income is between these amounts.
Q: What is "modified adjusted gross income"? Modified adjusted gross income is defined by the IRS. To find it, first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions") but before itemized deductions from Schedule A or personal exemptions are subtracted. AGI includes all income including wages, salaries, interest income, dividends and capital gains.
Q: How is this homebuyer tax credit different from the tax credit that Congress enacted in July of 2008? The most significant difference is that this one does not have to be repaid.
Q: How do I claim the tax credit? Claim it on your federal income tax return by completing IRS Form 5405, then claim this amount on line 67 of your 1040 for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).
Q: I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. Can I claim the new $8,000 tax credit instead? You may file an amended 2008 tax return. Consult with a tax adviser to ensure you file this return properly.
Q: Is a tax credit the same as a tax deduction? No. A tax credit is a dollar-for-dollar reduction in what you owe. That means if you owe $8,000 in income taxes and receive an $8,000 tax credit, you'd owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed.
Q: I bought a home in 2008. Do I qualify for this credit? No, but if you purchased your first home between April 9, 2008, and Jan. 1, 2009, you may qualify for a different tax credit. Consult with a tax adviser for more information.
Q: Is there any way to get the money before filing a 2009 tax return? If you believe you qualify for the tax credit, you can reduce your income tax withholding. Reducing tax withholding (up to the amount of the credit) will allow you to accumulate cash by raising your take-home pay. This money can then be applied to the down payment.
Adjust the withholding amount on your W-4 or through your quarterly estimated tax payment; IRS Publication 919 contains rules and guidelines. If you end up not buying the house, you'll have to repay the IRS income tax and possibly interest charges and penalties.
Q: The Secretary of Housing and Urban Development has announced that HUD will allow "monetization" of the tax credit. What does that mean? It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 income taxes to receive a refund. These funds may be used for certain down payment and closing cost expenses.
Under the guidelines announced by HUD, nonprofits and FHA-approved lenders will be allowed to give homebuyers short-term loans of up to $8,000.
The guidelines also allow government agencies, such as state housing finance agencies, to facilitate home sales by providing longer term loans secured by second mortgages.
Housing finance agencies and other government entities may also issue tax credit loans, which homebuyers may use to satisfy the FHA 3.5 percent down payment requirement.
In addition, approved FHA lenders will also be able to purchase a homebuyer's anticipated tax credit to pay closing costs and down payment costs above the 3.5 percent down payment that is required for FHA-insured homes.
Q: If I'm qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return? Yes. The law allows you to choose to treat qualified home purchases in 2009 as if the purchase occurred on Dec. 31, 2008. This means that the 2008 income limit applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns).
If you want to do this but have already filed your 2008 return, you may file an amended 2008 return claiming the tax credit. Consult with a tax professional.

For more information email Edwin mailto:mail@609sold.com
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