Bergen County NJ - Taxcredit2009

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The Extended and Expanded Tax Credit

Unfortunately, the tax credit deadline has ended for homebuyers to be "under contract." Please see below for closing deadlines. For further information, please contact our office at 201-288-5533.

Here’s how it works:
The deadline for the first-time homebuyer credit was extended to include purchases where a binding contract is signed by April 30, 2010, and closed by June 30, 2010.

• “First-time homebuyers” are those who have not owned a home during the previous three years.

• The credit is worth 10 percent of the purchase price, up to a credit limit of $8,000 on homes costing $800,000 or less; homes priced above that are ineligible.

• Qualifying income thresholds have been raised to $125,000 in modified adjusted gross income (MAGI) for individuals and $225,000 for married couples filing jointly, from the previous $75,000 and $150,000, respectively. (MAGI is usually found on line 38 of your federal income tax return).

• The credit phases out for individuals with MAGI between $125,000 and $145,000 and $225,000 to $245,000 for joint filers.

• If you are married, both you and your spouse must qualify as first-time homebuyers to receive the credit; also, each of you must be at least 18 years old at closing and neither can be claimed as another taxpayer’s dependent.

• Purchase transactions between immediate family members are not eligible.

• You must attach a copy of the purchase settlement agreement to your tax return.

• You must repay the credit if, within three years of purchase, the home is no longer your primary residence. (Certain exceptions will be made for military personnel and when one of the homeowners dies.)

• Qualified housing includes newly constructed or existing single-family houses, condominiums, manufactured or mobile homes – even boats that function as your principal residence.

• You can claim the tax credit for a 2010 purchase on either your 2009 (via an amended return, if necessary) or 2010 taxes.

The good news in this bill for current homeowners is that they too may qualify for a tax credit if they want to move to a new primary residence, whether because of a job transfer, downsizing at retirement or moving to a larger home or a new community.

Although the same income thresholds, purchase cost limit and closing deadlines apply, there are a few unique features:

• Instead of $8,000, the maximum credit amount is $6,500.

• You must have lived in your current home for five consecutive years out of the last eight.

• The newly purchased home must become your primary residence and not a second home or investment property.

• You are not required to sell your current residence; thus, you could rent it out or turn it into a second home.

Because of the complexity of tax law governing these transactions, consult your tax advisor before finalizing a purchase or deciding which year to claim the credit.

Note: This is placed on the site as informational –for more information and confirmation, please consult an attorney and/or financial professional.

A first-time home buyer is defined by law as a buyer who has not owned a principal residence during the three-year period prior to the purchase. All U.S. citizens who file taxes are eligible to participate in the program.

This tax credit is a true credit. It does not have to be repaid unless the home is sold within three years after purchase.

This tax credit is a refundable credit which means if you pay less than $8,000 in federal income taxes, the government will write you a check for the difference. For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $3,000 payment from the government. If you are due to receive a $1,000 tax refund from the government, your refund would grow to $9,000.

This tax credit coupled with historically low interest rates and high inventory of homes available for purchase, make this an excellent time to buy. If the home is sold within three years of purchase, the entire amount of credit is recaptured on sale.

Expanded Version of Tax Credit Will Allow More Homebuyers to Qualify

November 9, 2009—President Obama recently signed an expanded version of the $8,000 first-time homebuyer tax credit that was set to expire on November 30. “The new version of the tax credit has the potential to stimulate the housing market even more than the old version due to the fact that more people will qualify under the new rules,” said Gibran Nicholas, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers. “Although the tax credit remains at $8,000 for homebuyers that have not owned a primary residence in the last three years, it has been expanded to include a $6,500 tax credit for homebuyers that have lived in their current primary residence for at least five consecutive years out of the past eight years. Under the old rules, move-up homebuyers did not qualify.” Consider these three examples:

Example 1:
Jane purchased a home in 2002, lived there for 5 years as her primary home, moved out in 2007, and turned that home into a rental property. If Jane decides to buy a new primary residence today, she would qualify for the $6,500 tax credit based on the fact that she lived in the same residence as her primary home for at least five consecutive years out of the past eight.

Example 2:
Harry purchased a home in 2004, and lived there for the past 5 years as his primary home. If Harry decides to buy a new primary residence today, he would qualify for the $6,500 tax credit based on the fact that he lived in the same residence as his primary home for at least five consecutive years out of the past eight.

Example 3:
Nicole purchased a home in 2006, and lived there for the past 3 years as her primary home. If Nicole decides to buy a new primary residence today, she would not qualify for the $6,500 tax credit based on the fact that she did not live in the same residence as her primary home for at least five consecutive years out of the past eight.

The tax credit applies to homes purchased for less than $800,000 before May 1, 2010. “If you sign a binding contract to purchase a home before May 1st, you would need to close on the transaction before July 1, 2010,” Nicholas said. “It works kind of like a gift certificate that can be redeemed for cash. You simply file a form with the IRS right after you buy your home, and the IRS will send you a check for the full amount of your credit.”

The income limitation for single tax payers went up from $75,000 under the old rules to $125,000 under the new rules. For married tax payers, the income limitation went up from $150,000 to $225,000. “This means that more people will qualify for the credit – especially in parts of the country with higher costs of living,” Nicholas said. “This should help stimulate parts of the housing market that may not have been impacted by the old version of the credit.”

There are many creative ways of structuring your home purchase transaction in ways that maximize the benefits of the credit. Here are a few examples:

-The credit applies to 1-4 unit homes as long as you live in one of the units as your primary residence – you could live in one unit and rent out the others

-If two unmarried individuals buy a home, and only one of the individuals qualifies for the credit based on their income or past home ownership status, the individual who qualifies for the credit can claim the full credit. (Note: In the case of married couples, both spouses must qualify for the credit).

-The credit applies even if you have co-signers on your mortgage loan

Information courtesy of CENTURY 21 Eudan Realty