Are you eligible for an $8000 tax credit? About the First Time Homebuyer Tax Credit
The $8,000 First-Time Homebuyer Credit was scheduled to expire on December 1st, 2009. On November 5th the House and Senate voted to extend the $8,000 credit into 2010 by passing the Worker, Homeownership and Business Assistance Act of 2009 (WHBAA). President Obama signed these changes into law on November 6, 2009. The legislation also increases the income limits of those who will qualify for the credit and makes a slightly smaller credit available to current long-time homeowners. In this article, I will review these changes and briefly discuss a substantial, yet not widely promoted, tax deduction available for new vehicle in 2009. My goal is to help those of you who purchased (or are planning to purchase) a new home or a new vehicle put a little extra cash in your pocket.
A major change will now allow taxpayers who currently own a home that has been their primary residence for five of the past eight years to qualify for the credit.
Prior to the passing of the WHBAA, first-time homebuyers had until December 1st 2009 to close on their new home and qualify for the credit. First-time homebuyers will now have until April 30th, 2010 to contractually secure the purchase of their new home. They will then have an additional two months to finalize and close on those purchases. This means that qualifying homebuyers must enter into a binding contract to purchase a home by April 30th, 2010. The closing to transfer ownership must then occur on or before June 30, 2010.
First-time Homebuyer credit is equal to 10% of the home’s purchase price up to a maximum credit of $8,000. A first-time homebuyer continues to be defined as a taxpayer who did not own a primary residence (be it a home, trailer, or houseboat) at any point during the three year period prior to the new home’s purchase. A major change will now allow taxpayers who currently own a home that has been their primary residence for five of the past eight years to qualify for the credit. The credit is equal to 10% of the home’s value up to a maximum credit of $6,500. Neither credit will have to be repaid if the home remains the buyer’s primary residence for thirty-six months following the date of purchase. If, however, the home ceases to be the homebuyer’s primary residence before the end of this thirty-six month period, the entire remaining credit will have to be repaid with that year’s tax return.
The income limitations for those who qualify (whether they currently own a home or are a first-time homebuyer) have also increased. For home purchases before November 6, 2009, the credit available to single tax payers begins to be reduced if their modified adjusted gross income (MAGI) exceeds $75,000. The credit is reduced to zero once MAGI exceeds $95,000. The credit available to those married filing jointly, decreases once their income reaches $150,000 and is eliminated once their MAGI surpasses $170,000. For home purchases after November 7, 2009, the phase-out range rises to $125,000 and $145,000 for single tax payers and $225,000 and $245,000 for those married fling jointly.
The American Recovery and Reinvestment Act passed last spring added a new deduction for those who purchase a new car, light truck, motorcycle, or motor home (RV) between February 17, 2009 and December 31, 2009. If you purchased (or are planning to purchase) a new vehicle during this period you can deduct any state and local sales tax paid on the purchase on your 2009 income tax return. You can take this deduction even if you don’t itemize on Schedule A.
There are restrictions, however. Only new vehicle purchases qualify for the deduction. Used vehicles do not. The deduction is limited to taxes paid on the first $49,500 of vehicle cost. Your deduction will be reduced if you’re married, file jointly and your MAGI is more than $250,000 (125,000 if single). It will be reduced to zero if your income is greater than 260,000 ($135,000 if single).
Today I used a few broad strokes to highlight changes to the First-Time Homebuyer Tax Credit and the new vehicle sales tax deduction. I did not have room to fill in the finer details that may impact your return. Any questions? Please consult with your tax professional or feel free to contact our office.