By Elizabeth Gregory
Special To The Dispatch
OCEAN CITY – On Nov. 6, 2009, President Obama signed into law the “Worker, Homeownership, and Business Assistance Act of 2009.” This new law extends and generally liberalizes the tax credit for first-time homebuyers, making it a more flexible tax-saving tool. It also includes some crackdowns designed to prevent abuse of the credit. Before the new law was enacted, the homebuyer credit was only available for qualifying first-time home purchases after April 8, 2008, and before December 1, 2009.
The top credit for homes bought in 2009 is $8,000 ($4,000 for a married individual filing separately) or 10 percent of the residence’s purchase price, whichever is less.
Only the purchase of a principal residence located in the U.S. qualifies for the credit. Vacation homes and rental properties are not eligible.
The homebuyer credit reduces your tax liability on a dollar-for-dollar basis. If the credit is more than the tax you owe, the difference is paid to you as a tax refund.
For homes bought after Dec. 31, 2008, you must pay back the credit if you dispose of the home or stop using it as your principal residence within 36 months of purchase.
The credit is subject to a phase-out based on your modified adjusted gross income (AGI) for the year of purchase. Before the new law, the credit was phased out at modified AGI between $75,000 and $95,000 ($150,000 and $170,000 for joint filers).
The new law makes four important changes to the homebuyer credit:
— New lease on life for the homebuyer credit. The homebuyer credit is extended to apply to a principal residence bought before May 1, 2010. The homebuyer credit also applies to a principal residence bought before July 1, 2010 by a person who enters into a written binding contract before May 1, 2010, to close on the purchase of the principal residence before July 1, 2010.
Certain service members on extended duty outside of the U.S. get an extra year to buy a qualifying home and get the credit; they also can avoid the recapture rules under certain circumstances.
— Current homeowners who are “long-time residents” can claim credit of up to $6,500. For purchases after Nov. 6, 2009, you can claim the homebuyer credit if you (and, if married, your spouse) maintained the same principal residence for any period of five consecutive years during the eight years ending on the date that you buy the subsequent principal residence.
You don’t have to sell your current home in order to qualify for a homebuyer credit on the replacement home. You can buy the replacement home to beat the new deadlines (explained above) before you sell the old home.
The maximum allowable homebuyer credit for qualifying existing homeowners is $6,500 ($3,250 for a married individual filing separately), or 10 percent of the purchase price of the subsequent principal residence, whichever is less.
— The homebuyer credit is available to higher-income taxpayers. For purchases after Nov. 6, 2009, the homebuyer credit has a phase out for individuals between $125,000 and $145,000, and for those filing a joint return between $225,000 and $245,000.
— New home-price limit for the homebuyer credit. For purchases after Nov. 6, 2009, the homebuyer credit can’t be claimed for a home if its purchase price exceeds $800,000. A purchase price that exceeds the $800,000 threshold by even a single dollar will cause the loss of the entire credit.
The new law includes a number of new anti-abuse rules that make it tougher to claim the homebuyer credit. The most important of these are as follows:
— Beginning with the 2009 tax return, the homebuyer credit can’t be claimed unless the taxpayer attaches to the return a properly executed copy of the settlement statement used to complete the purchase of the qualifying residence.
— For purchases after Nov. 6, 2009, the homebuyer credit can’t be claimed unless the taxpayer is at least 18 years old as of the date of purchase. A married person is treated as meeting this requirement if he or his spouse is at least 18 years old.
— For purchases after Nov, 6, 2009, the homebuyer credit can’t be claimed by a taxpayer who can be claimed as a dependent by another taxpayer for the tax year of purchase. It also can’t be claimed for a home bought from a person related to the buyer’s spouse.
The tax law still gives you the extraordinary opportunity to get your hands on homebuyer credit cash without waiting to file your tax return for the year in which you buy the qualifying principal residence. You can treat a qualifying principal residence bought in 2010 (before the new deadlines) as having taken place on Dec. 31, 2009, and file for 2009 claiming the credit for that year.
What also hasn’t changed is the need for getting expert tax advice in negotiating through the twists and turns of the beefed-up homebuyer credit.
(Gregory, CPA, CVA, ABV, CFF, is managing member of E.S. Gregory & Associates, LLC, Certified Public Accountants in Ocean City. She can be reached at 410-524-2720.)