Extension and Expansion of the First-Time Home Buyer Tax Credit
By Lyle Kotler & Daniel Sokoloff, Tax Department
On Friday November 6, 2009, President Obama signed the Worker, Homeownership and Business Assistance Act of 2009, which expands and extends the first time homebuyer credit. The credit, which existed under previous legislation, provides for a tax credit of $8,000 for first time homebuyers who will close on a home by the end of June 2010. The previous credit was set to expire by November 30, 2009.
In order to qualify for the credit, buyers must sign a binding contract before April 30, 2010 and close on the property by June 30, 2010. The credit is limited to the lesser of, 10% of the purchase price, or $8,000. The maximum purchase price is capped at $800,000.
In addition to the extension of the first time home buyer credit, the new law allows current homeowners who are looking to purchase a new home a $6,500 tax credit as long as they close on their new home by June 30, 2010. This new credit, a result of the efforts of the realtor lobby, is intended to reach those homeowners wanting to “buy up” and have patiently waited for the right time to buy. To qualify, the buyer must have owned and lived in their current house for any five-consecutive year period out of the last eight-year period that ended on the date the replacement home is purchased.
The benefit of the credits phase out as the taxpayer’s income increases. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 (single) or between $225,000 and $245,000 for joint filers.
The credits do not have to be paid back unless the purchased home is not the taxpayer’s main residence within a three-year period following the purchase. For purchases in 2010, taxpayers can claim the credit on either their 2009 or 2010 tax return. The credit is claimed using Form 5405, which is filed with the original return.
These additional provisions should boost the real estate market in ways beneficial to buyers, sellers, and the real estate industry.