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| As a syndicated columnist, author and international speaker, Julie Garton-Good has been called "America's Home Affordability Expert", addressing more than 25,000 persons annually on the topics of real estate finance and home affordability. |
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| New $8,000 First-Time
Homebuyer Tax Credit |
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It’s official. The American Recovery
and Reinvestment Act of 2009 has authorized
a tax credit of up to $8,000 for
qualified first-time homebuyers purchasing
a principal residence on or after January
1, 2009 and before December 1, 2009
(eleven months).
While the finite points of the new law
are still being ironed out, the following
are some of the more frequently
asked questions and answers that you
can share with prospective buyers. As
always, since each buyer’s situation is
unique, please refer them to their tax
advisor for interpretation.
Q: What’s the definition of a first-time
homebuyer for the purpose of this law?
A: The law defines a first-time homebuyer
as a buyer who has not owned a
principal residence during the threeyear
period prior to the purchase (the
date on the HUD-1 is the determining
factor). For married taxpayers, the law
tests the homeownership history of both
the home buyer and his/her spouse.
For example, if you have not owned
a home in the past three years but your
spouse did, neither of you would qualify
for the tax credit. However, if an unmarried
couple jointly buys a home and
one person owned a home in the past
three years but the other did not, that
person can designate the tax credit to
the other person to claim on his/her
individual tax return. The same is true
if a parent (who already owns a home)
co-signed on a loan with his/her child.
The child could claim the first-time
homebuyer tax credit.
Q: If someone owns a vacation
home but doesn’t live in it as a primary
residence, would they qualify
for the tax credit?
A: Yes. Owning a vacation home,
second home, or rental that’s not used
as a primary residence does not disqualify
the buyer if he/she can prove
that it hasn’t been used as a primary residence
for the previous three years.
Q: Is a tax credit the same as a tax
deduction?
A: No. A tax credit is a dollar-for-dollar
reduction in the amount of tax the taxpayer
owes. If someone owed $8,000 in federal
income taxes and received the $8,000 tax
credit, he would owe nothing to the IRS
for that filing period.
Q: How is the amount of the tax credit
calculated?
A: The tax credit is equal to 10 percent
of the purchase price of the home, up to
a maximum of $8,000.
Q: Are there income limits for claiming
the tax credit?
A: Yes. The credit is reduced for buyers
with a modified adjusted gross income
(MAGI) of more than $75,000 (filing
single) and $150,000 for married taxpayers
filing a joint return. There is no tax
credit for taxpayers with MAGI of more
than $95,000 (single) or $170,000 (married)
and is reduced proportionally for
MAGIs between these amounts.
Q: How do you determine your modified
adjusted gross income (MAGI)?
A: Modified adjusted gross income is
your adjusted gross income (your total
income for the year), minus certain deductions
called “adjustments” but before
itemized deductions. On IRS Form 1040,
it’s found on line 37.
Q: If my modified adjusted gross
income (MAGI) is over the limit, can
I receive any tax credit?
A: Possibly. It depends on your income.
Here’s where the formula gets deep. Suppose
a buyer has a modified adjusted gross
income of $88,000 which exceeds the
$75,000 limit by $13,000. Dividing
$13,000 by $20,000 (the formula) yields
0.65. When you subtract 0.65 from 1.0,
the result is 0.35. If you multiply $8,000
by 0.35 means that the buyer is eligible
for a partial tax credit of $2,800.
Q: How does this 2009 homebuyer
tax credit differ from the one last year?
A: The greatest difference is that the
2009 tax credit does not have to be repaid.
Due to its repayment requirement, the 2008
credit was essentially an interest-free fifteen-
year loan. The new tax credit requires
homeowners to live in the home for at least
three years or face repaying the entire
credit amount. Some exceptions apply.
Q: What types of homes qualify for
the tax credit?
A: The definition of principal residence
is identical to the one used to determine
whether you may qualify for the $250,000
/ $500,000 capital gain tax exclusion for
principal residences. These include singlefamily
detached homes, attached housing,
like condos and townhomes, manufactured/
mobile homes, and houseboats.
Q: How do I claim the tax credit?
A: When filing your federal income tax
return, complete and attach Form 5405
to determine the tax credit amount, and
claim that amount on Line 69 of the 1040
form. No other applications or forms are
required.
Q: This tax credit is said to be “refundable.”
What does that mean?
A: When a tax credit is refundable it
means that the credit can be claimed even
if the taxpayer has little or no federal income
tax liability to offset. For example,
if a first-time homebuyer had a tax liability
of $6,000 and received a tax credit for
$8,000, the taxpayer would receive a
check for $2,000.
Julie Garton-Good has designed the “CCREC”
(Consumer-Certified Real Estate
Consultant™) designation and training
course. She is the sole three-time recipient
of the Real Estate Educator Association’s
“International Real Estate Educator
of the Year” award. She is an awardwinning
real estate educator and author of
seven books. Julie’s 4th Edition of “All About
Mortgages: Insider Tips to Finance and
Refinance Your Home in Today’s Economy”
has just been released by Kaplan
Publishing, New York.
You can reach her at 1-800HiJulie or on
the Web at www.juliegarton-good.com.
She is a regular contributing columnist to
The REAL ESTATE PROFESSIONAL.
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