Sunday, November 8, 2009

Frequently Asked Questions On the HomeBuyers Tax Credit


For anyone who purchased a house in 2009 and you may be confused about the Home buyers Tax Credit here is some valuable information.

1. Question: Who is eligible to claim the $8,000 tax credit?


Answer: First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and on or before April 30, 2010. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner. A limited exception exists for certain contract for deed purchases and installment sale purchases. However, the law also allows home sales occurring by June 30, 2010 to qualify, provided they are due to a binding sales contract in force on or before April 30, 2010.Persons who are claimed as dependents by other taxpayers or who are under age 18 are not qualified for the tax credit program.

2. Question: What is the definition of a first-time home buyer?


Answer: The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, IRS Notice 2009-12 allows unmarried joint purchasers to allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.


3. Question: How is the amount of the tax credit determined?


Answer: The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.


4. Question: Are there any income limits for claiming the tax credit?

Answer: Yes. For sales occurring after November 6, 2009, the income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $125,000 for single taxpayers and $225,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for single taxpayers with MAGI of more than $145,000 or $245,000 for married taxpayers filing a joint return and is reduced proportionally for taxpayers with MAGIs between these amounts.

5. Question: What is “modified adjusted gross income”?

Answer: Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI. AGI is total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.To determine modified adjusted gross income (MAGI), add to AGI certain amounts of foreign-earned income.

6. Question: The income limits for claiming the tax credit were raised when the tax credit was extended. Are the higher limits retroactive?

Answer: No. The new income limits are only applicable to purchases occurring after November 6, 2009.The income limits for sales occurring on or after January 1, 2009 and on or before November 6, 2009 are $75,000 for single taxpayers and $150,000 for married couples filing jointly.

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