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First-Time Homebuyer Credit

Posted by Predovich & Company

The American Recovery and Reinvestment Act of 2009 contained provisions that may interest you.  In order to encourage the purchase of principal residences, Congress enacted changes to the First-Time Homebuyer Credit.  Whether or not you have purchased a home, understanding these changes will help you make more informed decisions as to your tax plan.

The first-time homebuyer who, in 2008, purchased a home that he or she uses as a principal residence may claim a credit of up to $7,500 that may be used to offset federal income tax.  The taxpayer who is married and files a separate return may claim up to $3,750.  The taxpayer who is married and files a joint return, and has modified adjusted gross income of $150,000 or more, will see that credit gradually reduced.  For other taxpayers, the reduction begins at $75,000.  In addition, any person claiming this credit must pay it back - similar to an interest-free loan - over a fifteen-year period beginning in the second tax year after the tax year the credit is claimed.  For 2008, that is 2010.  Finally, any taxpayer who claims the credit, then divests himself or herself of the home before the end of the fifteen-year recapture period faces an accelerated recapture provision.  In effect, he or she must repay the amount of the credit that has not been repaid in a single payment.

The first-time homebuyer who purchases a home in 2009, but before December 1, benefits from more taxpayer-friendly provisions.  The amounts of the credit increase to $8,000 and $4,000.  The repayment provision no longer applies; and the accelerated recapture provision only applies to the three-year period following the year of purchase.  The income limits are still the same.

The 2009 purchaser who would realize a better tax result by claiming the credit in 2008 may elect to treat the purchase as occurring in 2008.  However, we would need to discuss your unique circumstances to determine whether this election will yield the best overall tax result.  Please contact us if you have any questions about this tax credit.

Source: Bureau of National Affairs

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