Good Afternoon, March 16, 2009
As the Chairman for RPAC, the Realtor Political Action Committee here in Alaska I want you to know that I fight every day for the rights of home owners. Part of my job as Chairman is staying in touch with what happens here locally and what happens in Washington.
This article was sent to me and I thought it did a great job of explaining the $8,000 tax credit and wanted to get it to you.
Please know you can call me any time if you have questions about our market locally and nationally.
You are my friends and clients, my family and I appreciate you!
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The $8,000 tax credit and what it means to you.
The $8,000 tax credit is included in the $787 Billion (yes, with a B) stimulus plan with various tax cuts and spending programs.
Part of the stimulus included a revision to last year's repayable tax credit to an $8,000 tax credit that does NOT need to be repaid.
Be advised, not all tax preparers are aware of all of the provisions of the new tax credit. I had a client call me from Jackson Hewett saying they would not apply the $8,000 tax credit for a house she purchased in 2009 to her 2008 tax year. This is not correct, see When Can the Credit be Claimed below.
So here's a breakdown of the new $8,000 tax credit:
All first-time homebuyers who purchase a home between January 1, 2009 and November 30, 2009 may be eligible for a tax credit of $8,000 or 10% of the purchase price, whichever is lower. Unlike its $7,500 predecessor, the $8,000 does not need to be repaid.
Tax Credit vs. Tax Deduction
This is a tax credit, not a tax deduction, meaning it’s a dollar-for-dollar decrease to your tax liability. Also, the tax credit is refundable, meaning you can receive the full value of the credit even if you do not have an $8,000 tax liability.
Phase-Out
The tax credit phases-out for individuals making $75,000 or over modified adjusted gross income (MAGI), and couples making $150,000 or over MAGI. Below are examples of how the phase-out will apply to the two different scenarios.
Individual Making $75,000 or Over
Assume that an individual homebuyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.
Couple Making $150,000 or Over
Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.
I'm not sure of the $20,000 significance, other than it's defined as the factor to use on pgs. 615-616 of HR 3221.
Who Cannot Take the Tax Credit
If any of the following apply, you cannot take the tax credit:
1. Individuals making $95,000 or over MAGI, and couples making $170,000 or over MAGI; meaning you receive no tax credit if your income is this much or more a year.
2. You buy your home from a close relative, including: parent, sibling, spouse, grandparent, child, etc.
3. You sell your home within the first three years of purchasing it. If this occurs, the tax credit must be repaid.
4. You are a non-resident alien
5. If home ceases to be your primary residence within first year of purchase. In other words, if you purchase a home in 2009, and move-out or sell in 2009, then you can't take the tax credit on your 2009 tax return. I'm assuming you are subject to recapture if you purchase the home in 2009, take the credit on your 2008 tax return, and move-out or sell in 2009.
First-time Homebuyer Definition
A first-time homebuyer is defined as someone who has not owned a home within the last three years. If married filing jointly, both spouses must meet the first-time homebuyer definition to take the tax credit.
The bill states both spouses must be first-time homebuyers to qualify for the credit. There doesn't seem to be an exception to this rule if filing separately. However, I'd consult your tax preparer.
Recapture Period
If you dispose of the primary residence or it ceases to be your primary residence during the first three years of purchase, the tax credit is recaptured. In doing my research, there seems to be conflicting opinions on whether you're subject to recapture if the home "ceases" to be your primary residence during the first three years of purchase. The National Association of Realtors seems to believe recapture only applies to & selling your home. However, it seems to me that moving out of the property within three years would also make you subject to recapture. I'd recommend reading the bill's verbiage for yourself (carries over from HR 3221, pg 619) and consulting your tax preparer. The section reads:
ACCELERATION OF RECAPTURE.—If a taxpayer disposes of the principal residence with respect to which a credit was allowed under subsection (a) (or such residence ceases to be the principal residence of the taxpayer (and, if married, the taxpayer’s 20 spouse)) before the end of the recapture period.
When Can the Tax Credit be Claimed?
The $8,000 tax credit can be claimed for your 2008 tax year (filed by April 15th 2009), 2008 amended return or 2009 tax year.
Homes That Qualify
The tax credit is applicable to any home that will be used as a principle residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principle residence also qualify. For new construction, the purchase date is considered the day you occupy the home; therefore you must move-in by November 30th 2009 to qualify for the tax credit.
Also, homes in the District of Columbia qualify for the tax credit. However, it cannot be used in conjunction with the existing District of Columbia tax credit.
If you purchased a home under the Mortgage Revenue Bond Program, you can utilize the $8,000 in conjunction (different than 2008 $7,500 repayable tax credit).
How About Those Who Purchased Homes in 2008?
Homes purchased in 2008 are subject to the $7,500 repayable tax credit.
Sources:
HR 1, American Recovery and Reinvestment Act
HR 3221: Housing Economic and Recovery Act of 2008
Please shoot me an e-mail or call if you are ready to take part in this great opportunity.
Your friend,
Wayne Salmans
Real Estate Consultant
Keller - Williams Realty
(907) 841-8231
Salmans@mtaonline.net
www.waynesalmans.com
