New Homeowners Tax Credit – Revisited

This is an update to my blog of January 13th on the 2008 New Homeowners Tax Credit.

There have been changes made in the Economic Stimulus Plan concerning the new homeowner credit. Here are the highlights of the new law:

The credit is now available if you close on your home between January 1 and November 30, 2009.

You cannot have owned a home for three years prior to closing on your new home.

The credit amount is 10% of the purchase price of the home to a maximum of $8000. So if you buy a house for $50,000, you only get a credit of $5,000. Previously, the maximum was $7,500.

You do not have to pay the credit back if you buy a house in 2009. If you qualified for the $7,500 credit by purchasing a home in 2008, you still have to pay the credit back over 15 years.
You must pay the credit back if you sell the home within 3 years.

The tax credit is refundable. This means that if your total taxes are $3000, the IRS will send you a check for $5000 ($8,000 credit less the $3,000 you owe in taxes).

The credit may not exceed a total of $8000. If two individuals buy a house together, the $8,000 is divided between them rather than each getting a credit.

You cannot buy the house from a related party, like your parents or grandparents.

You can claim the credit on your 2008 tax return even if you bought the house in 2009.

You start losing the credit when your income exceeds $75,000 if you are single or $150,000 if you are married.

How do you claim the credit? File Form 5405 with your 2008 tax return. You can still claim the credit If you are buying a home after your filed your 2008 tax return. Just file an amended return to claim the credit.

Here is where some planning comes in handy. If you owe the IRS, file an extension. After you buy the home, file the return with the credit, and avoid having to write the IRS a check. Suppose you owe the IRS $2,000 and close on your house in May of 2009. File an extension (Form 4868) for your tax return. Then, after you have closed on the house, file the return with the $8,000 credit. You get a check for $6,000, the $8,000 credit less the $2,000 you owed in taxes. This is a great deal and you should take advantage of it. Call it your own personal bailout.

The law was recently signed. The details are still being worked on and the IRS has not issued any guidance. So keep an eye on the news and this blog as things develop.

Comments anyone?