Thursday, August 27, 2009

Credit for First-Time Homebuyers-Extended and Expanded

If you buy a house in 2009 before December 1, you may be eligible for the newly expanded First-Time Home buyers Credit. This credit, which was to expire June 30, 2009, has been extended through November 30, 2009 — and has been made significantly more attractive. You can now claim $8,000 (up from $7,500)or 10 percent of the purchase price, whichever is lower. If you are married and file a separate return, however, the most you can claim is $4,000 (up from $3,750). As under prior law, the credit is phased out for taxpayers with adjusted gross income over $75,000 ($150,000 for married taxpayers filing jointly).

Perhaps more significant is the fact that the credit is no longer treated as a zero-interest loan that must be paid back over 15 years. Instead, the credit needs to be paid back only if, within 36 months of purchasing the home, you either sell it or you (and your spouse)stop using it as your principal residence. Even though the credit is available for houses purchased in 2009, you can claim the credit on your
return for 2008 by electing to treat the purchase as occurring in 2008. This election will not affect the application of the 15-year repayment provision — it
will not apply to purchases in 2009 even if they are treated as occurring in 2008 for purposes of claiming the credit in 2008.

The credit can now be claimed for the purchase of a residence financed by the proceeds of a mortgage revenue bond. For residents of Washington, D.C., this credit is now the default credit, instead of the $5,000 credit solely for D.C. fi rst-time homebuyers. Under the prior law, D.C. homebuyers were entitled to the D.C. credit, not the first-time homebuyer credit. However, no first-time homebuyer credit is available to any taxpayer who claimed the D.C. homebuyer credit in any prior year.

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