Accountants CPA Hartford
William Brighenti, Certified Public Accountant
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Office Address:  46 Mildrum Road, Berlin, Connecticut 06037-2423      Phone:  (860) 828-3269      Email:  info@cpa-connecticut.com
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Home Buyer Tax Credits
$8,000 or $6,500 good tax reasons to buy a home soon!

H.R. 3548 - Worker, Homeownership, and Business Assistance Act of 2009
was signed into law by President Barack Obama on November 6, 2009, offering an extension of generous tax benefits to first-time home buyers as well as expanding nearly comparable tax benefits to move-up, repeat home buyers.  The $8,000 (or 10% of the purchase price, whichever is less) first-time home buyer tax credit was scheduled to expire on December 1, 2009.  Now first-time home buyers have until April 30, 2010 to sign a contract for the purchase of a home, and until June 30, 2010 to close on its purchase to qualify for the $8,000 refundable credit.

In addition, the income limits for single taxpayers has been increased from $75,000 to $125,000, and for married taxpayers from $150,000 to $225,000 of modified adjusted gross income.  Modified adjusted gross income is adjusted gross income plus certain amounts of foreign-earned income, as detailed on Form 5405, the tax return form required to be filed along with a copy of the HUD-1 settlement form (closing statement) in order to claim the tax credit when filing Form 1040.  A partial pro-rata tax credit is available for taxpayers whose modified adjusted gross income exceeds either of the above-mentioned  limits by as much as $20,000, the "phaseout range" of the tax credit.  As under the old law, the new law requires that the buyer has not owned a principal residence during the three-year period prior to the purchase, must use the purchased home as a principal residence for the next three consecutive years, must not have bought the home from a lineal ancestor or descendent, and is entitled to claim the credit on either his 2008 or 2009 tax returns; however, because of the extension of the tax credit until April 30, 2010, a 2010 buyer may claim the credit on either his 2009 or 2010 returns.

There are some signficant changes taking effect on November 6, 2009 in the new home buyer tax credit bill.  In addition to the prohibition of purchasing a home from a lineal ancestor or descendent, a buyer is now prevented from taking a credit on a home purchased from a spouse or the spouse's lineal relatives.  In addition, a buyer must be at least 18 years of age and cannot be claimed as a dependent on someone else's tax return.  Moreover, no credit is available for any home purchased for a price greater than $800,000.

The most significant change in the new home buyer tax credit bill, however, is the inclusion of a $6,500 (or 10% of the purchase price, whichever is less) tax credit for existing home owners who purchase a principal residence after November 6, 2009 and before April 30, 2010.  To qualify, a home buyer must have owned and resided in a home for at least five consecutive years of the eight years prior to the purchase date of the new home.  Consequently, home buyers who recently lost their homes in foreclosures in the past few years may also be entitled to this tax credit.  The income limit, purchase price cap, minimum age, family purchase restrictions, the filing requirements and eligible tax years of claiming the credit are the same as those of the first-time home buyer tax credit.

Unlike the earlier $7,500 housing tax credit of the 2008 American Housing Rescue and Foreclosure Act, neither the $8,000 nor the $6,500 home buyer tax credits are required to be repaid in 15 years or when the home is sold.  Furthermore, it is a refundable tax credit:  if your taxes for 2009 are less than $8,000, and you purchase your first home after November 6, you will obtain a refund for the balance.  For example, if your total unpaid tax liability for 2009 is $3,000 and you purchase your first home this December and you meet all of the conditions enumerated above, you would receive a check for $5,000 from the federal government.  If you wish, you can even apply the tax credit against your prior year tax return to accelerate the claiming of the credit; of course, this may require the filing of an amended tax return using Form 1040X in order to claim the credit.  If your current year income exceeds the income limits of $125,000/$225,000, you may choose to treat the purchase as occurring in a prior tax year if your income then was underneath the new limits in order to maximize your tax credit.  And if you need the cash for the downpayment and closing costs of your new purchase, HUD will allow you as a buyer using a FHA-insured mortgage to apply your anticipated tax credit toward your home purchase immediately rather than waiting until the filing of your tax return and the receipt of your tax refund.

Even "resident aliens", as defined in Publication 15 for tax purposes, who meet the other requirements listed above are entitled to this tax credit.  Anyone who is not a nonresident alien, as defined by the IRS, and who has not owned a principal residence in the previous three years or has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date of a home, and who meets the income limits test may claim the tax credits of up to $8,000 or $6,500, respectively.

All in all, the recently enacted new home buyer tax credit bill offers significant tax savings for anyone contemplating the purchase of a home.  This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice.  For further information, please consult appropriate professional advice from your attorney and certified public accountant. 

Have a tax or an accounting question?  Please feel free to submit it to William Brighenti, Certified Public Accountant, Hartford CPA Accountants.  For information and assistance on any tax and accounting issue, please visit our website:  Accountants CPA Hartford.

If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.  The above tax advice was written to support the promotion or marketing of the accounting practice of the publisher and any transaction described herein.  The taxpayer recipients of this offering memorandum should seek tax advice based on their particular circumstances from an independent tax advisor .
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