First-Time Home Buyers' Tax Credit Extended
The Worker Homeownership & Business Assistance Act of 2009 Broadened
Nov 8, 2009
As a continuing part of the American Recovery and Reinvestment Act of 2009, President Barack Obama signed into law HR 3548. The bill lengthens the validity period of the current home buyers tax credit, increases the income margins for people to qualify, broadens the scope of the law to include repeat home buyers and grants increased powers to the IRS.
Designed to stimulate the economy at the beginning of the housing crunch, the IRS reported in IR-2009-83 on Sept. 17, 2009 that the program, “…provides tax benefits to 1.4 million families [with]…more claims expected.” Furthermore, the White House, as reported by Lisa Lambert of Reuters on Oct. 30, 2009, said the “…economic stimulus plan…saved or created 640,329 jobs so far….[Many] jobs backed...were in…construction -- 80,000.”
First-Time Home Buyers
The Federal congress, the IRS and the National Association of Home Builders (NAHB) have established websites detailing the various requirements for the perspective home buyer. A compilation of the data is given in the brief synopsis below.
- The tax credit applies to sales occurring in 2009 and 2010 before June 30, 2010 (if a binding sales contract is signed by April 30, 2010.)
- New or existing homes qualify.
- The “first-time home buyer” is a buyer who has not owned a principal residence during the three-year period before the purchase.
- New rules for active duty military and Foreign Service personnel as well as returning or newly deployed veterans from/to overseas areas have been included.
- The maximum credit is 10% of the purchase price up to $8,000.
- The maximum modified adjusted gross income is $145,000 for singles and $245,000 for married taxpayers but the credit reduces proportionally with incomes above $125,000 and $225,000 respectively.
- Buyers claim the tax credit on Federal IRS Form 5405.
- Taxpayers can accelerate the credit by claiming it in the preceding year (within IRS limitations.)
This is a new section added to the law that has many of the same rules that apply to the first time home buyer tax credit with only a few differences. It is designed for buyers who want to move up to a bigger or downsize to a smaller house while continuing to stimulate the US economy. The qualified credit and the residency requirements are the significant differences.
- To qualify, the buyer must have owned and lived in a home as a primary residence for five consecutive years at any time during the eight years before the replacement home is purchased.
- The maximum credit is 10% of the purchase price up to a limit of $6,500; however, home prices exceeding $800,000 will not qualify at all.
The Congressional Budget Office reported that the bill would cost $10.8 billion over the next 10 years and the IRS argued in an Oct. 20 report that as much as 100,000 claims (nearly 10%) are fraudulent. Passing the Senate with a unanimous vote, Republicans and Democrats have given the treasury department additional tools to combat this problem.
- This authority allows the IRS to summarily assess mathematical or clerical errors without conducting an audit.
- The law requires people, who claim the credit, to attach a copy of their settlement statement with their tax return.
- The credit is not available to taxpayers claimed as a dependent or under age 18.
- Prohibitions against certain intra-family purchases now apply.
- No stay requirement for military and Foreign Service personnel are included.
The new law will benefit many and should continue aiding the American economy, but the law does require complicated tax data. Therefore, buyers should consult a tax consultant for information relating to any specific circumstance.
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