STUFF ABOUT THE $8,000 TAX CREDIT

The Internal Revenue Service (IRS) has posted a revised version of Form 5405, First-Time Homebuyer Credit to incorporate provisions from the American Recovery and Reinvestment Act. Qualifying taxpayers who buy a home this year before December 1 can claim up to $8,000 or $4,000 for married individuals filing separately, on either their 2008 or 2009 tax returns.
To qualify for the first time home buyer credit, the residence must be purchased. A residence which is constructed by the taxpayer is treated as purchased on the date the taxpayer first occupies the residence.
A home purchased between January 1, 2009 and December 1, 2009 qualifies for the $8,000 tax credit that does not have to be repaid, rather than the $7,500 tax credit that has to be paid back. Qualified buyers that filed returns claiming the $7,500 credit can file an amended return to correct the error and claim the $8,000 credit instead. Why they would end it on December 1, 2009 and not January 1, 2010 is beyond me.
An amended 2008 return can be filed to claim the credit or the buyers can wait and file the Form 5405 with their 2009 return.
A credit can’t be claimed in anticipation of a purchase that has yet to happen. The purchase has to be finalized. IRS news release 2009-27; First-Time Homebuyers Have Several Options to Maximize New Tax Credit.
There is no requirement to pay back the credit for a principal residence purchased in 2009. There is however an obligation to repay the credit on a home purchased in 2009 if it stops being the principal residence within 36 months from the date of purchase. The full amount of the credit becomes due on the return for the year the home stopped being the principal residence. The full amount of the credit is reflected as additional tax on that year's tax return.
The credit is 10 percent of the purchase price of the home, with a maximum available credit of $8,000 for either a single taxpayer or a married couple filing a joint return, but only half of that amount for married persons filing separate returns.
Any home purchased as the taxpayer’s principal residence and located in the United States qualifies for the credit.
Taxpayers (including spouse, if married) who owned a principal residence at any time during the three years prior to the date of purchase are not eligible for the credit unless that home was outside of the United States. Owned includes homes that were received as a gift or inheritance. Vacation homes and rental property do not qualify for this credit. The taxpayer can rent out a room in the residence and qualify for the credit.
The credit is phased out based on modified adjusted gross income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000. IRS Notice 2009-12 provides guidance for allocating the first-time homebuyer credit between taxpayers who are not married. If two single people purchase a home together and only on is considered a first time home buyer, that person is eligible to take their allocable share of the credit.
There are no minimum income criteria. Someone with no taxable income who qualifies as a first-time homebuyer can file a return for the sole propose of claiming the credit.
A residence that is converted to a rental is generally no longer considered a primary residence after three years. If the property owner did not live in the home and did not own the home they were living in for the last three years, they would be considered a first time home buyer.
There is no requirement to claim the credit.
YOU CAN NOT TAKE THE CREDIT IF:
Your income exceeds the phase-out range.
You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild (lineal descendent).
You do not use the home as your principal residence.
You sell your home before the end of the year.
You are a nonresident alien.
You owned a principal residence at any time during the three years prior to the date of purchase of your new home.
The amount of the credit that is actually given is going to be net of what you owe. If, in anticipation of buying a home, the taxpayer decreases the amount withheld by his or her employer, the federal income tax withheld would then normally leave the taxpayer with a tax due and the credit will be reduced. An example is that if the credit is $8,000 and the tax due is $2,000 the refund would be $6,000. If the taxpayer overpaid their income tax their refund would be the amount of the overpayment plus the credit.
Though not stated anywhere that I can find, it is likely that if the taxpayer has outstanding debt such as IRS, student loans or child support the credit would be applied to those debts first.
Before anyone applies for a bridge loan of the $8,000 to be applied toward closing cost or to buy down interest they better be sure they can pay it back if IRS doesn’t send it to them.
AS ALWAYS – CHECK WITH YOUR CPA OR ATTORNEY