Thanks to a new law change, longtime homeowners can now get a piece of the homebuyer credit pie.
Strategy: Move fast if you plan to buy a new home. To qualify, you must complete the purchase before May 1, 2010. If you secure a binding contract before May 1, you have until June 30, 2010, to finalize the sale.
Best of all, you don’t have to wait until you file your 2010 tax return to reap the rewards. You can claim the credit on your 2009 return—even if you buy the home in 2010.
Taxpayers who claim the first-time homebuyer credit on their 2009 returns will not be able to file electronically. (IRS News Release IR-209-18) Also, the IRS has revised Form 5405, First-Time Homebuyer Credit, to reflect the new law changes.
Alert: A taxpayer who purchases a home after Nov. 6, 2009, must use the revised form to claim the credit. Taxpayers claiming the credit on their 2009 returns must use the revised form no matter when the home was purchased. However, someone who purchased a home before Nov. 6, 2009, and elects to claim the credit on an original or amended 2008 return may continue to use the prior version of Form 5405.
The credit was enhanced by the “Worker, Homeownership and Business Assistance Act of 2009.” Here are answers to several FAQs:
Q. What’s new about the credit?
A. The new law includes the following changes effective as of Nov. 6, 2009, (the date of the new law’s enactment):
- The home purchase deadline for the credit is extended from Nov. 30, 2009, to April 30, 2010 (or June 30, 2010, if a binding contract is in place on April 30, 2010).
- The credit is not just for first-time homebuyers. For purchases after Nov. 6, 2009, you may qualify for a maximum $6,500 credit if you’ve owned and used a home as your principal residence for any five consecutive years during the past eight.
- The phaseout ranges are increased. The new phaseout ranges are between $125,000 and $145,000 of MAGI for unmarried filers, and between $225,000 and $245,000 for joint filers.
- The price of the home is capped at $800,000 for all purchases after Nov. 6, 2009.
- The credit isn’t available for a home purchased from a spouse or a spouse’s relatives. This extends the rule denying the credit for purchases from your own lineal descendants.
- Homebuyers must provide proof of purchase (i.e., a HUD-1 form). The homebuyer (or spouse) must be at least 18 years old and can’t be claimed as a dependent.
Q. What has stayed the same?
A. The maximum credit for qualified first-time homebuyers still equals the lesser of 10% of the purchase price or $8,000. The credit remains “refundable,” meaning you can obtain a refund even if your tax liability is lower than the credit amount. And you can still claim the credit in the tax year prior to the year of the purchase.
Caution: As before, you must recapture the credit if you stop using the home as your principal residence within three years after the purchase.
Q. How is a “principal residence” defined?
A. The same way the IRS defines it for other tax purposes. This is the place where a taxpayer spends most of his or her time.
Q. Do I have to sell my old home to qualify for the new $6,500 credit?
A. The tax law isn’t entirely clear on this. However, if you use the new home as your new principal residence and meet all the other requirements, logic would say you should qualify.
Q. Can I claim the credit if I build a new home instead of buying it?
A. Yes. The IRS generally considers the date of occupancy as the date of purchase, so you’ll have to move in by June 30, 2010.
Q. Can I use the credit to finance the purchase?
A. Yes. File early so you can obtain the refund prior to your closing. Alternatively, you or your spouse might adjust salary withholding to reflect the fact you’ll be claiming the credit in the future.
The new law also features liberalized home credit rules for military personnel.
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