First-Time Homebuyer Credit for Tax Year 2009

The first-time homebuyer credit was created with the "Housing Assistance Tax Act of 2008" and provided taxpayers a refundable credit up to $7,500. However, on February 17, 2009, President Obama signed into law the "American Recovery and Reinvestment Act of 2009" which created several changes to the first-time homebuyer credit which is now refundable up to $8,000.

Who is considered a "First-Time Homebuyer"?

A “first-time homebuyer” is an individual who has NOT owned another principal residence in the United States or District of Columbia at any time during the 36-month period prior to the date of purchase.

If the individual is married at time of purchase, neither the individual nor his or her spouse may have had ownership of a principal residence during the 36-month period prior to the date of purchase. Even if the individual is filing separately from their spouse, the individual MUST take into account their spouse's ownership interest in any other principal residence.

Principal Residence (Main Home)

An individual's "principal residence" is the home where he or she ordinarily lives most of the time. An individual can only have one principal residence at any one time. The home MUST be a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. For purposes of claiming the first-time homebuyer credit, the principal residence MUST be located within the United States including the District of Columbia.

What is considered the "Purchase Date"?

The "purchase date" is the date that closing occurs and title to the property is transferred to the new homeowner. If a principal residence is being constructed, the purchase date is considered to be the first date the individual occupies the home as their principal residence.

How much is the credit?

For a qualifying first-time principal residence purchased between January 1, 2009 and November 30, 2009, the REFUNDABLE homebuyer credit is equal to 10% of the purchase price up to a maximum 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. The maximum credit for a married person filing separately is $4,000.

If there is more than one first-time homebuyer for the same principal residence, the credit may be allocated among the qualifying homebuyers or one homebuyer may claim the entire credit. The total credit allocated among the homebuyer cannot be greater than 10% of the purchase price or $8,000.

Are there income limits for claiming the credit?

Yes. The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on "modified adjusted gross income" (MAGI). 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. This means that the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.

Does the credit need to be repaid?

Possibly. If the principal residence is purchased between January 1, 2009 and November 30, 2009, the credit generally does NOT have to be repaid. However, if the home ceases to be the taxpayer's principal residence at any time within 36 months of the date of purchase, ALL of the credit must be repaid in the year it ceases to be the taxpayer's principal residence.

There are some exceptions to repayment:

• If you sell the home to someone who is not related to you, the repayment in the year of sale is limited to the amount of capital gain on the sale. If you have a capital loss, repayment is not required.

• If you die, repayment of the credit is not required. If you filed a joint tax return and then you die, your surviving spouse would be required to repay his or her half of the credit.

• There is no repayment if the home is transferred in a divorce settlement. The spouse receiving the home is responsible for any possible future repayment.

• There is no repayment if the home is destroyed or condemned and you acquire a new principal residence within 2 years of the event.

When can the credit be claimed?

For a qualifying first-time principal residence purchased between January 1, 2009 and November 30, 2009, the credit can be claimed on an original 2008 federal income tax return, a 2008 amended federal income tax return, an original 2009 federal income tax return, or a 2009 amended federal income tax return.

Can the credit be claimed if a first-time homebuyer has no taxable income and/or is not required to file a tax return?

Yes. The credit is fully refundable if the person qualifies as a first-time homebuyer. Although there are maximum income limits for qualifying first-time homebuyers, there is no minimum income criteria. Therefore, an individual with no taxable income who qualifies as a first-time homebuyer may file for the sole purpose of claiming the credit for a refund.

If a home was purchased in early 2009 and that homebuyer claimed the $7,500 first-time homebuyer credit which is required to be repaid, can that homebuyer do something to get the $8,000 tax credit which generally does not have to be repaid?

Yes. An amended 2008 federal income tax return can be filed to change the credit and credit amount.

Who CANNOT claim the first-time homebuyer credit?

• Individuals who have owned a principal residence within 3 years of the date of purchase,

• Individuals who buy and sell the same home in the same year or the home ceases to be used as a principal residence by the end of the year,

• Individuals whose principal residence is NOT located in the United States or District or Columbia,

• Individuals who acquire their principal residence by gift or inheritance,

• Individuals who are nonresident aliens,

• Individuals who purchase a home from a close relative*, or

• Individuals whose income exceeds the phase-out range. This means joint filers with modified adjusted gross income of $170,000 and above and other taxpayers with modified adjusted gross income of $95,000 and above.

*Close Relative Defined

1. Your spouse, ancestors (parents, grandparents, etc.), or lineal descendants (children, grandchildren, etc.).

2. A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation.

3. A partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.

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