First Time Homebuyers Credit

Alert: Homes purchased after 1/1/2009 and before 12/20/2009 qualify for the new $8,000 First time homebuyers credit.

The rules for this credit are completly different from the rules discribed below for the 2008 credit.  You will be able to amend your 2008 returns to claim and recieve this $8,000 credit now!

I will be posting details on the new credit in June 2009 (we need a vacation)

An interesting new option for homebuyers was signed into law in July 2008.

Here is a quick and dirty interpertation of the bill along with my opinions:

• This is being called a tax credit, in reality it must be repaid over 15 years so going forward I will refer to it as loan. (Its a really good loan because the interest rate is ZERO)
• The maximum loan is $7,500 as long as you buy a house that costs over $75,000.  I don’t know too many homes that cost less but this leads to my next observation.
• It must be your primary residence. A primary residence is a residence in which an individual lives most of the time. A primary residence can be a house, condominium, co-operative apartment, houseboat, or mobile home.  (You could probably get a nice houseboat for $75,000)
• You must be a first time homeowner. someone who has not owned a primary residence in the three-year period ending on the date of purchasing the home. (This is a dramatically different interpertation of first time homeowner from other parts of the tax code.  To qualify for a penalty free withdrawl from an IRA to buy a first home you must have not owned a home for 10 years?)
• The credit has a very limited life-span. Individuals will need to purchase a residence after April 9, 2008, and before July 1, 2009. (Funny if congress was hoping to spur home sales why would they make it retroactive to sales before July.  I would hope if sales are still slow in 2009 the time frame would be extended)
• The credit is fully refundable, meaning taxpayers will be able to obtain an additional federal tax refund of up to $7,500 even if they have no other tax liabilities.(No carryforward if you normally get a refund just add $7,500 to that amount!)
• Repayment – The loan needs to be repaid in equal installments over 15 years. That works out to $500 per year. ( I assume the IRS will be tracking this loan with their new fancy computers.  I see problems with post loan, divorced taxpayers, deceased taxpayers, etc)
• Home sale within 15 year time frame. In the year of sale the loan balance must be paid in full, or up to the amount of the gain on the sale of the home. (Taxpayers should keep good records of the money they put into their home for repairs or improvments to reduce the amount of the gain.)
• Example: You bought a house in August 2008 and take the $7,500 loan on your 2008 tax return, you then sell your house in 2009 for no gain over your purchase price, you do not owe any further loan repayments!
• Timing of Credit – Purchases made in 2009 after filing a 2008 return have the option of filing an amended 2008 return to claim the credit.( This money is not available when you really need it when you are sitting at the closing table. You can expidite the refund  by filing an amended return, For 2009 purchases, instead of waiting until 4/2010 file an amended 2008 return and get your money in about 3 months.  You can also adjust your federal tax withholdings lower in anticipation of the refund)

This is a really unique, complicated law designed to keep us tax experts in business.  But if the word gets out I think it could really make a difference in the market. (first time homebuyers do not add a home for sale)

Craig Lovasz, Owner EA

www.csltax.com

info@csltax.com