by Millie Kanyar, J.D., PMN
Watson Realty Corp.
2009 NEFAR President
Brought to you by the Builder/Realtor Relations Committee of the Sales and Marketing Council of the Northeast Florida Builders Association and LENNAR
Q. How does the tax credit work?
A. Great news for consumers and the housing market! As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, Congress passed new legislation that:
• Extends the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30.
• Expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing primary residence between Nov. 7 and April 30.
• Imposes an $800,000 purchase-price limitation. For purchases after November 6, the credit cannot be claimed for buying a residence for more than $800,000. There is no phase out mechanism. A purchase price that exceeds the $800,000 threshold by even a single dollar will cause the loss of the entire credit.
• Requiring a minimum age of 18 to claim the credit.
• Prohibiting dependents from claiming the credit.
• Denying the credit for purchases from parties related to the taxpayer’s spouse.
• Requiring taxpayers to attach a signed copy of their settlement statement to their tax return.
• People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The pre-2009 Assistance Act MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before November 6.
• For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.
• For the first time, long-time homeowners who buy a replacement principal residence including single family homes, condos, town homes and co-ops between Nov. 7 and April 30, may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived in the same principal residence for any five-consecutive-year period during the eight-year period that ended on the date the replacement home is purchased. One key point is that the replacement home must be a principal residence, vacation homes aren’t eligible.
Q. What are the different parameters of the $8,000 and $6,500 tax credits?
A. First-time home buyers, who purchase a primary residence, including: single-family homes, condos, townhomes, and co-ops between Nov. 7and April 30 are allowed a maximum credit of $8,000.
To qualify as a first-time home buyer the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.
The written binding contract to purchase must be in effect on or before April 30 and closed on or before July 1.
Each home buyer’s tax credit is determined by two additional factors, the price of the home and the buyer’s income. Under the Extended Home Buyer Tax Credit, which became effective Nov. 7, credit may be awarded only on homes purchased for $800,000 or less. Single buyers with incomes up to $125,000 and married couples with incomes up to $225,000 may receive the maximum tax credit.
The credit decreases for buyers earning between $125,000 - $145,000 for single buyers and $225,000 - $245,000 for home buyers filing jointly. The amount of the tax credit decreases as income approaches the maximum limit. Home buyers earning more than the maximum qualifying income - over $145,000 for singles or over $245,000 for couples - are not eligible for the credit. Some buyers may still be eligible for the credit.
The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three-year period, the full credit amount will be recouped on the sale.
The bottom line is there are opportunities for those who are able to take advantage of the tax credit whether a first time buyer, step up or step down buyer who has owned a home in the past five years. Someone that has opted to help a family member out by turning their existing home into a rental for the family member that needs help can now take advantage of the market to purchase their dream home or buy into the area they have always wanted to live.