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Special Edition - May 2009 |
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1111 SUPERIOR AVENUE
CLEVELAND, OHIO 44114
216.696.4200
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First Time Homebuyers Tax Credit |
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Congress has recently enacted two separate pieces of legislation that call for a substantial tax credit for first time homebuyers purchasing a principal residence. The initial legislation applied to 2008 home purchases but was expanded and significantly modified by subsequent legislation that applies to 2009 home purchases. Both credits are refundable, meaning the government will refund the taxpayer any amount by which the credit exceeds the taxpayer's tax liability.
Under both programs, a "first-time homebuyer" is defined as a taxpayer who did not own his or her principal residence at any time in the three years prior to the purchase date. If the taxpayers are married filing jointly, neither taxpayer can have owned his or her principal residence in the three years prior to the purchase date. For sales of existing homes, the "purchase date" is the closing date. For construction of new homes, the "purchase date" is the date on which the taxpayers first occupied the home.
Both credits are phased out based on the taxpayer's "modified adjusted gross income" (AGI plus certain amounts excluded from income, such as certain foreign income). Phase out range for married filing jointly = $150,000 to $170,000. For all others = $75,000 to $95,000.
Neither credit is available if the taxpayer:
· Buys his or her home from a close relative, including a spouse, parent, grandparent, child, or grandchild;
· Is a non-resident alien; or
· Has home financing through tax-exempt mortgage revenue bonds. The primary difference between the two programs is that the 2008 tax credit functions as a fifteen-year interest free loan for all taxpayers. The 2009 tax credit need not be repaid at all, except under certain circumstances. The following chart summarizes the key differences between the 2008 and 2009 versions of the tax credit.
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Housing and Economic Recovery Act of 2008 |
American Recovery and Reinvestment Act of 2009 |
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Applicable Purchase Dates |
Apr. 8, 2008 - Dec. 31, 2008 |
Jan. 1, 2009 - Dec. 1, 2009
(not Dec. 31, 2009) |
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Maximum Credit Amount |
10% of purchase price, up to $7,500 ($3,750 if married filing separately) |
10% of purchase price, up to $8,000 ($4,000 if married filing separately) |
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Terms for Annual Payments to Repay Credit |
Repaid as a 15-year interest-free loan. 1/15th of credit must be paid as an additional income tax each year beginning with the taxpayer's 2010 form 1040. This results in an additional tax of $500/yr. if the taxpayer received the full $7,500 credit. |
No annual repayment required |
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Effect of Taxpayer Ceasing to Occupy Home as Primary Residence |
The entire balance of credit remaining unpaid is due in the year the taxpayer ceases to use the property as his primary residence. |
The entire credit must be repaid in the year the taxpayer ceases to use the property as his primary residence only if the taxpayer ceases to use the property as his primary residence within 36 months of the purchase date. |
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How to Claim the Credit |
May be claimed on 2008 income tax return by filing form 5405 along with form 1040. Taxpayers can file amended returns to obtain the credit. |
May be claimed on 2008 or 2009 income tax returns by filing form 5405 along with form 1040. If closing occurs after April 15, 2009, the taxpayer can file an amended 2008 tax return after closing and claim the credit on the 2008 return instead of waiting until filing the 2009 return. |
Please contact us if you have any questions about whether you qualify for this tax credit or how you can claim it on an amended income tax return for 2008 or on your income tax return for 2009. | |
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At Schneider, Smeltz, Ranney & LaFond, we offer thoughtful, practical solutions to the complex problems facing our clients. Established in 1895, Schneider, Smeltz, Ranney & LaFond is Cleveland's oldest law firm. We not only apply the technical expertise our clients require, but also provide excellent, personal, and timely service to our clients.
We are a civil practice firm. Our primary areas of practice are business law, business succession planning, estate planning, estate and trust administration, charitable planning, family law, employment law, litigation, real estate, taxation and health care law.
Please feel free to contact one of our attorneys if you would like more information on any of the above issues or if you are in need of quality, legal services.
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