Sunday, August 16 2009
Q: We have several questions about the first time homebuyer credit and hope you can help us.
First we want to verify that this was extended and that we can still qualify. We think it was extended for purchases from July 2, 2009, to Dec. 1, 2009. Is that correct?
I've never owned a home but my wife was married before and owned a home with her ex-husband. Can we still qualify for this credit based on my history of ownership? If we qualify, does it have to be a new home or just new to us? Could we just buy a lot to build on it later?
If my parents lend us money for the down payment, can we use the credit to help repay them? We don't know the difference between a credit and a deduction. Will we actually get $8,000, or a portion of that based on our income tax bracket?
Good questions, some basic and some not so basic.
If you are financially able to do so, this is a great year for a potential new homebuyer to make a purchase. Real estate prices are down, interest rates are low, and if you qualify, the government (with the help of my and other taxpayers' dollars) is going to give you an $8,000 tax credit. A tax credit is much better than a tax deduction. A credit is a dollar-for-dollar reduction in the amount of tax you owe. If you owed $10,000 in federal income tax, the $8,000 credit will reduce the amount of tax you pay to $2,000.
As you indicated, an $8,000 deduction in an assumed 15 percent federal income tax bracket would only reduce your tax liability by $1,200 (15 percent of $8,000). If you owed taxes of $10,000, you'd still owe $8,800 with an $8,000 deduction.
The American Recovery and Reinvestment Act of 2009 allows for a tax credit of as much as $8,000 for qualified first-time homebuyers purchasing a principal residence on or after Jan. 1, 2009, and before Dec. 1, 2009. It eliminated the 15-year "recapture rule," making it a true no-strings-attached tax credit. The tax credit enacted in July 2008 required repayment of the credit, making it similar to an interest-free loan. Now, repayment is not required as long as the home remains a principal residence for at least three years (certain exceptions apply).
The credit is equal to 10 percent of the home purchase price up to $8,000. You can't buy a lot, a vacation home or rental property to qualify; you must purchase a home to be used as your principal residence. If you already own a vacation home or rental property but not a personal residence, you can still qualify.
The home can be new or a resale; it only has to be new to you and your spouse as owners. If your wife has not owned a home for three years before you two purchase a home, you will meet this qualification test for a first-time homebuyer. If she owned a home as her principal residence during the three-year period prior to your purchase, you will not qualify for the credit. If you were buying a home together and weren't married, the credit could be allocated to you even though she owned a home within the three-year period.
The credit is phased out if, as a married couple, your modified gross adjusted income is between $150,000 and $170,000. The full credit is allowed for MAGIs less than $150,000 and not for MAGIs of $170,000 or more. The credit is reduced proportionally for those with MAGIs within this range. The range for single filers is $75,000 to $95,000. Adjusted gross income is the first number on Page 2 of your tax return. Certain incomes are added to AGI to determine MAGI.
Contact your tax adviser or see IRS form 5405 for more details on MAGI.
Your parents can give or lend you money for a down payment, and you can use the tax credit to help repay them. Anyone can give as much as $13,000 to anyone each year without tax consequences.
Source: http://www.newsobserver.com/business/story/1648169.html
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