J. William Seabrooke CPA P.C.

The name for this relatively new tax credit is somewhat misleading.   Although Congress started out in this direction (limiting the credit to those taxpayers who qualified as a “first time homebuyer”) on November 6, 2009 the Worker, Homeownership and Business Assistance Act of 2009 expanded the provisions of the law (Public Law 111-92) to include those  current homeowners who are qualified.  

2008 Federal tax returns required the completion of Form 5405 with the tax credit amount being posted on line #69 of the Form 1040.  If you download the form from the IRS website (http://www.irs.gov) you’ll also find the instructions for the completion of the form plus information regarding who is eligible for the credit and who is not.  Additionally, the 2008 version of the form can only be used for homes that were purchased before November 7, 2009 for which an election was made to claim the credit on the 2008 return.  A new version of the form will be released by the IRS in December 2009 for all qualified home purchases that were made after November 6, 2009 (whether the credit is claimed for 2008 or for 2009) and for all claims on 2009 tax returns for homes that were purchased at any time in 2009.  

First time homeowners can still qualify for a maximum tax credit of $8,000.00.  The maximum tax credit for a current homeowner is limited to a statutory maximum of $6,500.00.  The new law extends the deadline for qualifying home purchases from the original expiration date of November 30, 2009, to April 30, 2010.  Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase which is usually accomplished through the closing process with either a title company or an attorney.

Recent information from the Internal Revenue Service follows:

WASHINGTON — A new law that went into effect Nov. 6 extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers.

The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.

The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.

But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.

For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.

A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.

A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405.

Income Limits Rise

The new law raises the income limits for people who purchase homes after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

New Requirements

Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law:

• Dependents are not eligible to claim the credit.
• No credit is available if the purchase price of a home is more than $800,000.
• A purchaser must be at least 18 years of age on the date of purchase.

For Members of the Military

Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011.

For more details on the credit, visit the First-Time Homebuyer Credit page on IRS.gov.

Related Items:

IRS YouTube Videos:

• New Homebuyer Credit 
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