Under prior law, a taxpayer who was a first-time homebuyer was allowed a refundable tax credit equal to the lesser of $7,500 or 10 percent of the purchase price of a principal residence. The credit was allowed for qualifying home purchases on or after April 9, 2008 and before July 1, 2009 (without regard to whether there was a binding contract to purchase prior to April 9, 2008). The credit phased out for taxpayers with modified adjusted gross income between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase. A taxpayer is considered a first-time homebuyer if he or she had no ownership interest in a principal residence in the United States during the three-year period prior to the purchase of the home to which the credit applies.
The credit was recaptured ratably over 15 years with no interest charge beginning in the second taxable year after the taxable year in which the home is purchased. For example, if the taxpayer purchased a home in 2008, the credit was allowed on the 2008 tax return, and repayments began with the 2010 tax return. If the taxpayer sold the home (or the home ceased to be used as the principal residence of the taxpayer or the taxpayer’s spouse) prior to complete repayment of the credit, any remaining credit repayment amount was due on the tax return for the year in which the home was sold (or ceased to be used as the principal residence). However, the credit repayment amount could not exceed the amount of gain from the sale of the residence to an unrelated person.
The American Recovery and Reinvestment Act extended the homebuyer credit for qualifying home purchases before December 1, 2009, increased the maximum credit amount to $8,000, and waived the recapture of the credit for qualifying home purchases after December 31, 2008 and before December 1, 2009.
The Worker, Homeownership and Business Assistance Act of 2009 extended the deadline even more. Now, taxpayers who have a binding contract to purchase a home before May 1, 2010, are eligible for the credit. Buyers must close on the home before July 1, 2010. For a home that you construct, the purchase date is considered to be the first date you occupy the home.
First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return.
Normally, taxpayers who owned a principal residence at any time during the three years prior to the date of purchase are not eligible for the credit. However, a “longtime homeowner” can get a credit of up to $6,500 for a qualifying replacement home purchased after November 6, 2009 and on or before April 30, 2010. To qualify, you must have owned and used the same home as your principal residence for at least five consecutive years of the eight-year period ending on the date you by your new principal residence.
Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009 or early 2010. The obligation to repay the credit arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.
• Key point. Check the IRS website (irs.gov), or contact a tax professional, to see if you qualify for the credit.
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