Residential Homebuyer Credits

For transactions finalized between 11/7/09 through 4/30/10

Real estate transactions for our residences are a powerful tool to accelerate the recovery of our nation’s economy.  So far Congress has passed 3 laws since 2008; this outline is to focus only on the latest which was signed into law on 11/6/2009.

There are two types of credits:

1. The First-Time buyer:

• An individual is considered to be a first-time homebuyer if he/she has had no ownership interest in a principal residence in the U.S. during the three year period prior to the purchase of the home to which the credit applies. (A nonresident alien is not permitted to claim the credit.)

Credit amount:

Total credit is 10% of the purchase price not to exceed $8,000.

2. Repeat buyer:

• You are considered a repeat buyer if you and your spouse (if married) owned and maintained a principal residence for any 5 CONSECUTIVE year period during the previous eight years ending on the date that you buy a principal residence.

• It is NOT required that the purchase price of the home be equal to or greater than your current residences’ price.

• NO requirement for your current home to be sold in order to qualify for the credit.

• Married individuals filing separately can split the credit.

Credit amount:

Total credit is 10% of the purchase price not to exceed $6,500.

For all buyers of residential properties, here are the basic general rules:

1. Property must be in the United States.
2. Purchase price up to $800,000 (There is zero allowable credit if this limitation is exceeded).
3. The credit is paid to you even if you have no tax liability.
4. You can claim the credit for tax year 2008 (by filing an amended 2008 return) or with tax years 2009 or 2010 return.
5. Closing date can be no later than 6/30/10 if you have a binding contract as of 4/30/09.
6. Crackdown measurements were added to reduce the abuse of this credit:
   1. Purchases from family members are ineligible.
   2. The IRS has the authority to require additional information, without an audit.
   3. Buyers must be 18 years of age as of the date of purchase and not a dependent of another taxpayer.
7. Purchased vacation homes and rental properties are not eligible.
8. Closing statement is required to be attached to your tax forms in order to claim the credit (for tax year 2010).
9.  You are eligible for the credit if your modified adjusted gross income (MAGI) does not exceed:
   1. For single taxpayers: $125,000
   2. For married taxpayers: $225,000
10.  Partial credit may be available if your modified adjusted gross income exceeds the limits by less than $20,000.
11.  HUD allows "monetization of the credit for FHA issued mortgages" (the anticipated tax credit can be used for specific down payment and closing expenses).
12.  Types of homes that qualify for this tax credit include: single-family detached homes, attached homes like town homes and condominiums, mobile homes, and house boats.
13.  Property purchased must continue to be used as the primary residence for 36 months from the purchase date.  The full amount of the credit received becomes due on the tax return for the year the home ceased being the primary residence (potential exceptions include: death, divorce and other conditions).
14.  Married individuals filing separately can allocate the credit as long as both meet the requirements.  Unmarried individuals can also benefit from the credit if only one individual meets the requirements. (IRS Notice 2009-12)
15. It is strongly recommended that a tax advisor be used to navigate through all the "twists and turns" of the above.

This outline is designed to provide accurate and authoritative information in regard to the subject matter covered.  It is provided to our clients with the understanding that we are not engaged in rendering legal, accounting, or other professional services.  If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

---From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.

IRS CIRCULAR 230 -- DISCLOSURE NOTICE: IRS Circular 230 regulates written communications about federal tax matters between tax advisors and their clients. To the extent the preceding correspondence and/or any attachment is a written tax advice communication, it is not a full "covered opinion". Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed herein.

In addition, the materials communicated herein are intended solely for the addressee and are not intended for distribution to any other person or entity, or to support the promotion or marketing of the transaction or matters addressed herein. Any subsequent reader should seek advice from an independent tax advisor with respect to the transaction or matters addressed herein based on the reader’s particular circumstances.