2010 Homebuyer Tax Credit – Details, Questions & Answers

Details, Questions and Answers About The Homebuyer Tax Credit Extension (effective November 7, 2009) 1)      What Are The NEW TAX CREDITS For Homebuyers?First-Time Homebuyers (FTHB’s): FTHB’s (defined as people who have not owneda home within the last 3 years) may be eligible for the tax credit.  The credit forFTHB’s is 10% of the purchase price of the home, with a maximum credit of $8,000.Single taxpayers and married couples filing a joint return may qualify for the fulltax credit amount; married filing separate qualify for $4,000. Current Owners:  For those who have owned and used the home being sold as theirprincipal residence consecutively for 5 of the previous 8 years, may qualify for a taxcredit of up to $6,500; married filing separate qualify for $3250. 2)      What Are The NEW DEADLINE DATES?In order to qualify for the credit, a written binding contract to purchase must be ineffect no later than April 30, 2010 and the purchaser will have until July 1, 2010 toclose.  3)      What Is The Difference Between A TAX CREDIT And A Tax Deduction?

The great news is that a TAX CREDIT is exactly that……..a tax credit.  This means

that it is a dollar-for-dollar tax REDUCTION rather than a reduction in the tax liability. 

So, as a tax credit, if a first-time homebuyer were to have owed $8,000 in income

taxes and they were to qualify for the tax credit of $8,000 they would owe nothing! 

(Compare this to a reduction in the tax liability whereby they would only save $1000

to $1500 when all was said and done.) And, better still, the tax credit is refundable, meaning the homebuyer can receive a

check for the credit if they have little income tax liability.  For example, if a first-time

homebuyer is eligible for a tax credit of $8,000, yet is only liable for $5,000 in income

tax, they can still receive a check for the $3,000 difference!  4)      What Are The NEW INCOME CAPS?Single tax filers can earn up to $125,000 and be eligible for the total tax credit.  Marriedtax filers, filing jointly, can earn up to $225,000.  Those who earn more than these capscan receive a partial credit based on an additional $20,000 phase out schedule.  Singlefilers who make more than $145,000, and joint filers who make more than $245,000 arenot eligible for any tax credit.  5)      Is There a LIMITATION ON THE COST of The Home Being Purchased?Qualifying buyers may purchase a property with a maximum sale price of $800,000.This is an absolute ceiling therefore if the purchase price is ANY amount over thisceiling, the purchase is ineligible for any portion of the tax credit. 

6)      For CURRENT OWNERS To Obtain A Credit, Must The New Home Cost More Than

      Their Old Home?

No.  For example, those who are moving from a high cost area to a lower cost area,

or those who are simply downsizing, and meet all eligibility requirements will qualify

for the $6,500 credit. 7)      What Types of Properties Are Eligible?Eligible primary residences include single-family homes, townhomes, condos and co-ops 

      What If I Owned a Home For 8 Years, But Sold It 2 Years Ago and Have Been Renting

      Since.  If I Purchase A Home Will I Be Eligible For the $6,500 Tax Credit If I Meet All

      The Other Requirements?

YES, because you lived in the home for more than 5 consecutive years of the previous 8 years,

you will qualify for the credit.   At the time of this posting, it appears that whether a homebuyer

has been renting or bought in the interim, they would be eligible because they owned a home

and occupied it as their principal residence for 5 consecutive years out of the last 8 years.  The

key word is “consecutive”, therefore as long as they lived in that home for 5 straight years what

was done in the sale doesn’t effect eligibility. Please contact a tax professional or the Internal

Revenue Service at 800-829-1040 for an up-to-date clarification of this interpretation. 9)      Will The Tax Credit Have To Be Repaid?

Depends.  No, the buyer does not need to repay the tax credit, if he/she occupies the home for three years

or more. However, if the property is sold during this three-year period, the full amount credit will be recouped

on the sale. 10)  What Documentation Is Needed To Obtain The Tax Credit?

The purchaser must attach documentation of the purchase to their tax return.  This would typically be the

HUD Settlement Statement signed at closing.  

DISCLAIMER:  Information provided herein is believed accurate based on early interpretations of the

governing legislation. Those relying on this information are advised to contact their tax professional or

the Internal Revenue Service at 1-800-829-1040 for clarification or confirmation of this information.