Lewes CPA
officeProgar & Company, P.A.
Certified Public Accounting services for businesses and individuals
Changes to first-time homebuyer credit in the Worker, Homeownership,
and Business Assistance Act of 2009
Dear Reader:
On November 6, 2009, President Obama signed into law the “Worker,
Homeownership, and Business Assistance Act of 2009” (the 2009
Assistance Act). In addition to providing an extension of
unemployment benefits for the long-time jobless, the 2009 Assistance
Act includes tax changes for individuals, namely changes extending
and generally liberalizing the first-time homebuyer tax credit. I'm
writing to give you an overview of these new provisions. Please call
our offices for details of how the new changes may affect you or
your family.
You may remember that the stimulus package enacted earlier this year
included an up-to-$8,000 tax credit for first-time homebuyers. This
credit was scheduled to expire on November 30, 2009. The new law
extends and expands the first-time homebuyer credit by:
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Extending deadlines for purchasing and closing on a home.
Under the 2009 Assistance Act, an eligible taxpayer must buy, or
enter into a binding contract to buy, a principal residence on
or before April 30, 2010 and close on the home by June 30, 2010.
For qualifying purchases in 2010, taxpayers have the option of
claiming the credit on either their 2009 or 2010 return.
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Authorizing the credit for long-time homeowners buying a
replacement principal residence.
For the first time, long-time homeowners who buy a replacement
principal residence 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.
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Raising the income limitations for homeowners claiming the
credit.
People with higher incomes can now qualify for the credit. The
new law raises the income limits for homes purchased after
November 6, 2009. 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, 2009.
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Providing additional homebuyer liberalizations for service
members.
The 2009 Assistance Act ensures that recapture of the credit
will not apply to service members (including members of the U.S.
uniformed services, Foreign Service, and intelligence community)
who dispose of a principal residence or cease using a home as a
principal residence after December 1, 2008, in connection with
Government orders received by the individual or the individual's
spouse for qualified official extended duty service.
Additionally, in the case of service members serving outside the
United States for at least 90 days during the period beginning
after December 31, 2008, and ending before May 1, 2010, the
credit is extended for one year. This means that the purchase
must occur before May 1, 2011 (or July 1, 2011, for taxpayers
with binding contracts). This change will allow service members
stationed overseas to take advantage of the credit when they
return.
However, the 2009 Assistance Act also adds new restrictions on the
first-time homebuyer tax credit by:
-
Imposing an $800,000 purchase-price limitation. For purchases
after November 6, 2009, the credit cannot be claimed for buying
a residence for more than $800,000. There is no phaseout
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.
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Prohibiting dependents from claiming the credit.
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Denying the credit for purchases from parties related to the
taxpayer's spouse.
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Requiring taxpayers to attach a signed copy of their settlement
statement to their return.
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Giving IRS the authority to automatically assess tax and begin
collection proceedings in cases where they suspect fraud (thus
shortening the time it takes for IRS to collect additional tax
through the normal deficiency procedures). This IRS authority
(called “math error authority”) is retroactive to April 9, 2008,
thus giving IRS the ability to quickly address any erroneous
refund claims that have been previously filed.
I hope this information is helpful. If you would like more details
about this or any other aspect of the new law, please do not
hesitate to call.