On Friday, November 6, 2009, President Barack Obama signed a law that extended the First Time Home Buyer Tax Credit, which was set to expire on November 30th. This law not only extends the first time home buyer tax credit, but it will also add a new tax credit for qualified repeat home buyers.
Though there is much debate whether this was a good thing for the country, the fact is, it’s a done deal and you need to understand the facts of this new law.
With this new law in effect we realize that there are many questions being asked. Well, we have the answers for you.
Q: What has stayed the same in the new law?
1) First-time home buyers still get a credit of as much as 10% of the purchase price, up to a maximum $8,000. “First-time” means people, including both partners of a married couple, who haven’t owned a principal residence for three years before the purchase.
2) All taxpayers who claim a credit must use the home as a principal residence for the next three consecutive years.
3) The credits offer dollar-for-dollar reductions of tax and are refundable. This means that a taxpayer who doesn’t pay enough tax to offset the credit can get a refund. For example, if you qualify for an $8,000 credit but only owe $5,000 in tax, you could receive a $3,000 check from the Internal Revenue Service.
4) Under the new law, as under the old, 2009 home buyers may claim the credit on either their 2008 or 2009 returns, and 2010 buyers may claim the credit on either their 2009 or 2010 returns.
5) Taxpayers do not qualify for a credit if they buy from a lineal ancestor or descendent, including parents or grandparents and children or grandchildren.
Q: What has changed?
Several important features took effect as of Nov. 6:
1) To take advantage of the tax credits, a buyer must have a contract in place before May 1, 2010, and the deal must close before July 1, 2010. No further extension is expected.
2) The price of the house is now capped. For purchases made after Nov. 6, no credit is available for any home costing more than $800,000.
3) There is now a tax credit for repeat buyers as well as for first-time buyers. Taxpayers who have lived in one residence for five consecutive years of the past eight can now qualify for a tax credit of as much as 10% of the purchase price, up to a maximum $6,500, of a new principal residence. The new home does not have to cost more than the old one.
4) Income limits for people who qualify for a tax credit are far more generous than under the previous law. For single filers, the credits now phase out between $125,000 and $145,000 of modified adjusted gross income; for married couples, the range is $225,000 to $245,000. For most people, modified adjusted gross income will be the same as adjusted gross income.
5) The new law contains anti-abuse measures designed to stem fraud, which became a problem with the previous home-buyer tax credit. Most buyers must be 18 or older, and no taxpayer may take a credit if he or she is claimed as a dependent on someone else’s return. Taxpayers taking the credit will also have to furnish proof of purchase. According to Robert Dietz of the National Association of Home Builders, this will usually be a HUD-1 form.
6) People taking the tax credit, as under the old law, aren’t allowed to buy a home from a lineal ancestor or descendent. The new law, applying to purchases made after Nov. 6, also says a person may not take a credit if the home is purchased from a spouse or the spouse’s lineal relatives.
For more details or to answer any questions you may have regarding the home buyer tax credit please contact Don @ (417) 844-5370 or fill out our contact form to be contacted by email.
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