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Homebuyer Credit Extended and Liberalized

Posted by Predovich & Company

Previous law. A refundable tax credit is available for qualifying first-time home purchases after Apr. 8, 2008, and before Dec. 1, 2009. For homes bought in 2009, the maximum first time homebuyer tax credit (FTHTC) is equal to the lesser of $8,000 ($4,000 for a married individual filing separately) or 10% of the principal residence's purchase price (for purchases before 2009, the dollar limits are $7,500 ($3,750 for marrieds filing separately). The FTHTC phases out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase.

New law. The Act extends the FTHTC and liberalizes it by making it available to (1) higher-income taxpayers and (2) to existing homeowners who are qualifying “long-time residents” and who buy another principal residence. However, for the first time there will be a dollar cap on residences qualifying for the FTHTC.

FTHTC extended. Under the Act, the First Time Homebuyer Tax Credit is extended to apply to a principal residence purchased by the taxpayer before May 1, 2010. The FTHTC also applies to the purchase of a principal residence before July 1, 2010 by any taxpayer who enters into a written binding contract before May 1, 2010, to close on the purchase of a principal residence before July 1, 2010.

FTHTC available to higher income taxpayers. For purchases after the enactment date, the FTHTC phases out for individual taxpayers with modified adjusted gross income (AGI) between $125,000 and $145,000 ($225,000 and $245,000 for joint filers) for the year of purchase.

FTHTC available for existing homebuyers who are “long-time residents.” For purchases after the enactment date, any individual (and, if married, the individual's spouse) who has maintained the same principal residence for any 5-consecutive year period during the 8-year period ending on the date of the purchase of a subsequent principal residence is treated for FTHTC purposes as a first-time homebuyer of that subsequent principal residence. The maximum allowable credit for such taxpayers is $6,500 ($3,250 for a married individual filing separately).

New limitation on home price for FTHTC. For purchases after the enactment date, the FTHTC cannot be claimed for buying a residence if its purchase price exceeds $800,000

Additional liberalizations for Service Members. The Act extends the FTHTC for an additional year, and waives recapture provisions, for individuals who are on qualified official extended duty, which means service on official extended duty as a member of the uniformed services, a member of the Foreign Service of the United States, or an employee of the intelligence community. Qualified official extended duty is any period of extended duty while serving at a place of duty at least 50 miles away from the taxpayer's principal residence or under orders compelling residence in government furnished quarters. Extended duty is any period of duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.

Source: RIA Checkpoint Newsstand 11/06/09

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