A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no present ownership interest in a principal residence in the U.S. during the 3-year period before the purchase of the home to which the credit applies.
Eligible first-time homebuyers who purchase a principal residence after December 31, 2008, and before July 1, 2009, may elect to treat the purchase as made on December 31, 2008.
This means taxpayers can still take advantage of the credit for 2008.
The first-time homebuyer credit phases out for individual taxpayers with modified AGI between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of purchase.
Under old law, the credit for new homebuyers was recaptured ratably over fifteen years, with no interest charge, beginning with the second tax year after the tax year in which the home is purchased. For each tax year of the 15-year recapture period, the credit was recaptured as an additional income tax amount equal to 6 2/3% of the amount of the credit.
In other words, under old law, the credit for new homebuyers was the equivalent of a long-term interest-free loan from the government.
New law: The Recovery Act extends the credit so that it applies to purchases before December 1, 2009. In addition, it waives the "regular" recapture of the credit for qualifying home purchases after December 31, 2008. This waiver of recapture applies without regard to whether the taxpayer elects to treat the purchase in 2009 as occurring on Dec. 31, 2008. If the taxpayer disposes of the home or the home otherwise ceases to be the principal residence of the taxpayer within 36 months from the date of purchase, the pre-Recovery Act 2009 rules for "accelerated" recapture of the credit apply. The Recovery Act also increases the maximum homebuyer credit to $8,000.
Thus, a taxpayer who purchases a new home within the qualifying dates no longer has to "pay back" the credit annually. Thus, the credit is now a gift (not a loan) from the government for some home purchasers.
About the Writer
Desmond G. Sheridan is a partner in the Greensboro law firm of Isaacson Isaacson Sheridan & Fountain, LLP and is a certified public accountant. His practice areas are business transactions, tax, corporations, limited liability companies, commercial real estate and estate planning. Sheridan has served on the Board of Directors of the North Carolina Association of Certified Public Accountants and has been recognized as a North Carolina "Super Lawyer" and a member of the "Legal Elite" by Business North Carolina. He has given numerous continuing education presentations to CPAs and attorneys.
