President Obama recently signed into law the $787 billion economic-recovery package which included a tax credit for first-time home buyers. That tax credit was scaled back from the proposed $15,000 to $8,000 in order to get sufficient support for the stimulus bill’s approval. While this is significantly less than what Obama had proposed, it is $500 more than the current home buyer tax credit. The new tax credit will only be available for qualifying home purchases during calendar year 2009 and is limited to ten percent of the purchase price or $8,000, whichever is less. Buyers who bought houses during 2008 will be covered under the existing $7,500 home owner credit. The proposal to make this credit available to anyone regardless of income was also dropped during the negotiations. The new tax credit will phase out for single taxpayers with modified adjusted gross incomes that exceed $75,000 (or $150,000 for married couples filing jointly). The tax credit is phased-out over the next $20,000, so there is no benefit if modified adjusted gross income is $95,000 or greater for a single taxpayer (or $170,000 for married couples filing jointly). Unlike the 2008 tax credit which must be paid back over time, the new $8,000 credit is a “true” tax credit. However, if you sell the home within thirty six months, the credit must be repaid.
The tax credit is only available to first-time home buyers which is defined as a person or married couple who had no ownership interest in a principal residence in the United States during the three years ended on the purchase date of the residence for which the credit is claimed. If you are married and file jointly, both of you must meet the first-time home buyer criteria. As a planning note, if you are a first-time buyer who is planning to get married during 2009 to someone who has already owned a home, you should consider buying the home individually during 2009 and postponing the wedding until 2010.
As an added benefit, the IRS has recently ruled that the $8,000 tax credit can be used to cover the down payment and other upfront costs if the loan is backed by the Federal Housing Administration. The Department of Housing and Urban Development, which oversees the FHA, estimates that this tax credit advance will enable tens of thousands of families to buy homes . You need to work with your lender to take advantage of this provision.
Joseph W. Kenny is a director and shareholder of Hamblett & Kerrigan, P.A. and practices in the areas of estate planning and taxation. He is also a Certified Public Accountant with certification as a Personal Financial Specialist. You can reach Attorney Kenny by email at [email protected].