RISMEDIA, April, 2009-The recently enacted first-time homebuyer tax credit is making a big splash with Realtors® across the country. Traffic and interest have increased as the word has spread to potential home buyers. While there are rules and limits governing the credit, a lot of people stand to benefit. In fact, NAR’s economists estimate the credit could contribute up to 500,000 more home sales this year. In fact, first-time home buyers made up more than 50% of the market in the most recent NAR home sales release. Coupled with historic affordability and record-low interest rates, the new credit is yet one more reason why it is a good time to buy for many people who have been sitting on the fence.
The new credit is retroactive to January 1, 2009. The repayment feature has been eliminated for 2009 purchasers. Regrettably, the old $7,500 credit (which was more like a 15 year, interest-free loan) for purchasers in 2008 must still be repaid. Realtors banded together, however, to convince Congress to remove the repayment feature, increase the credit, and make it available to everyone. When the stimulus proposal was introduced, the tax credit wasn’t even included so we faced an uphill battle. Thanks to nearly 300,000 letters from Realtors and the hard work of NAR’s leadership we did get the repayment feature removed and got the credit increased to $8,000 (though not the $15,000 we were hoping for). However, it is still for first-time home buyers only.
Here are some basic rules about the credit:
1) It is available to first-time home buyers only, but that means people who have not owned a home in the past three years. The home must be the principal residence and there is a recapture provision if one moves out or sells before the end of three years.
2) It is limited by income and starts to phase out for individuals at $75,000 and couples filing jointly at $150,000. The credit completely phases out at $95,000 and $170,000 respectively.
3) It expires on November 30, 2009. For existing home buyers you must close by that date, for new construction buyers you must occupy by that date.
4) It is not available directly at the closing table, though a number of states are creating bridge loan programs. So far, Colorado, Idaho, Missouri, Nebraska, Ohio, Pennsylvania, South Dakota, Tennessee and Texas have or expect to have bridge loan programs up and running. There are other ways to leverage the credit at closing, but you must close before you can claim the credit.
5) One does not need to wait till 2010 to claim the credit. One can claim it on their 2008 taxes by filing an amended return after they close on their home. If one has not filed yet, they can claim it on their return due April 15th or file for an extension. The credit is 10% of the price of the home or $8,000, whichever is less. If more than one eligible person is making the purchase, the credit must be divided. In other words, it is up to $8,000 per home purchased, not per first-time home buyer. So if two eligible buyers buy a home together, they must split the credit. The same is true for a married couple filing separately. Best of all, the credit is refundable, which means even if one does not owe taxes or is entitled to a refund, the credit is added to the refund.
6) There aren’t many restrictions on the type of home, even houseboats are included; however, one cannot purchase a home from a close relative.
These are the basic rules regarding the credit. It should be noted that we have no indication that in a situation where, for example, a mother and son are purchasing a house jointly and the mother is not a first-time home buyer, that the son is ineligible to claim all or part of the credit. As long as the first-time home buyer meets the rules, they can claim the credit. There are scenarios where the credit might have to be reduced or divided depending on the structure of the deal.
As with all tax matters, responsibility for complying with the tax code belongs to the taxpayer. Real estate professionals should recommend that their buyers consult their tax professionals to ensure eligibility for the credit and the proper way to claim the credit. For more information including the required IRS form visit: www.realtor.org/2009housingtaxcredit.
Ken Trepeta is the Director of Real Estate Services for the National Association of REALTORS®. Please visit www.realtor.org/res for more information.
