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New and Improved First-Time Homebuyers Credit—Take Advantage If You Can!

The stimulus bill that recently passed contained a very nice incentive for first-time homebuyers. The definition of a "first-time homebuyer" is someone who at the date of purchase has not owned a residence for the prior three years. The new homebuyers credit does not require repayment over the following 15 years, as did the 2008 credit. It is also increased to $8,000 and is a refundable credit. Vacation homes and rental properties do not qualify for the credit. The home must be located in the United States, U.S. territories do not count. The home must be used as the buyer's principal residence. The home cannot be purchased from a "close" relative.

The first-time homebuyer credit phases out for individual taxpayers with modified AGIs between $75,000 and $95,000 ($150,000–$170,000 for joint filers) for the year of purchase. The only modification to AGI is with respect to the exclusion of income earned abroad under Section 911 or the exclusion of income from certain U.S. territories or Puerto Rico under Section 931 or 933.

This provision basically gives the first-time homebuyer an $8,000 credit to apply to the purchase of a home, that reduces his tax due. Any credit in excess of the tax owed is refunded. Home prices have fallen quite a bit, and no one knows if the bottom has been hit. However, for a modest home purchase, the $8,000 provides some relief from any further price declines. Also, comparison should be made between the cost of continued renting versus the purchase of an asset that provides tax incentives with respect to interest expense and real estate taxes paid. It seems to be an excellent incentive for those who qualify.

This new increased credit applies to home purchases made on January 1, 2009 through November 30, 2009. The credit is 10% of the purchase price of a main residence up to the maximum $8,000. Both married individuals and single people may claim up to an $8,000 credit.

There are special rules for allocation of the credit when an "unmarried couple" purchases a residence. The rules even allow for multiple parties to split the credit if purchasing a residence together. However, in any scenario, the total credit may not exceed $8,000 on the residence. Also, in any case, if the residence fails to be maintained as the primary residence for 36 months after purchase for any purchaser, the credit must be recaptured.

A special provision allows a taxpayer to elect to treat a home purchase made prior to December 1, 2009 as made in 2008. The taxpayer may then file an original or amended return to claim the credit. However, please note that the home must be purchased before a claim of refund can be made. The claim of refund cannot be made in anticipation of the closing on the residence.

For more information, contact Mike Calahan at 312-980-2996 or your Blackman Kallick representative.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.