First Time Home Buyer Tax Credit

1. FIRST TIME HOME BUYER CREDIT

 2. It is an interest free government loan, not a credit. It is the lesser of 10% of the cost or $7,500.

3. Definition of first time homebuyer – No home ownership in a principal residence in the U.S. during the three year period (counted by 36 months) before the purchase of the home to which the credit applies.

4. Short window of opportunity – for home purchases after April 8, 2008 and before July 1, 2009.

5. For existing homes, all dates measured from closing date. For new construction, from date of occupancy (move in).

6. Refundable credit – paid to taxpayers who owe no tax or the amount of the credit that exceeds the amount they owe.

7. Income limitations high – total credit for up to $75,000 filing single, $150,000 filing joint with phase-out of credit.

a. Single $75,000 - $95,000
b. Joint $150,000 - $170,000
c. Based on Modified Adjusted Gross Income

8. *****Recapture – 15 years beginning the second year after purchase—NEWS UPDATE The new stimulus package in Congress has a provision for “No Repayment”

9. Accelerated Recapture – due in full in the year no longer utilize the property as a principal residence.

a. Examples

i. Sale
ii. Move out
iii. Convert to rental

b. Amount of accelerated recapture is limited to gain on sale, if any. Exceptions to acceleration recapture are allowed for divorce, death, and involuntary conversion.

10. Can move 2009 home purchase to 2008 tax return by tax election.

11. No Illinois State program for state credit at this time.

12. Other exclusions include

a. Financing from tax exempt mortgage revenue bonds (IFA)
b. Taxpayer purchases residence from a relative (spouse, parent, grandparent, child, or grandchild) but, aunts, uncles, cousins are OK.
c. Taxpayer is a non-resident alien

NEW TAX LAWS IN LAST 12 MONTHS

Mortgage Forgiveness Act of 2007
• 2 Million of Mortgage cancellation on Principal Residence now tax free (1099C)
• Problem if mortgage cancelled including home equity loans used to purchase personal items
• $500,000 home sale gain tax exclusion now applies to surviving spouse if home sold within 24 months of death of spouse.

Disclaimer: This is not meant to be construed as tax advice. Please consult your tax advisor for a more detailed explanation of your situation. Please also verify final status of the law.