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$8k Tax Credit has Expired

The Federal Government's $8,000 Federal Tax Credit for First-Time Home Buyers and $6,500 Federal Tax Credit for Move-Up Home Buyers has expired.  If you were able to take advantage of the credit and still have questions, here ya go!

Please review this general guidance regarding the credits. It is not intended to provide you with legal or tax advice. Consult your attorney or tax advisor for a full understanding.

Click here for a copy of the IRS tax form #5405 relating to tax credits for First-Time Home Buyers.

Frequently Asked Questions:

Q: Who was eligible for the $8,000 tax credit?
A: First-Time home buyers who purchased any owner-occupied home for sale are eligible for the tax credit. To qualify, a home must have been purchased before midnight on April 30, 2010. The purchaser had until September 30, 2010 to close the sale. The taxpayer’s “Modified Adjusted Gross Income" (MAGI) is limited to $125,000 for single taxpayers and $225,000 for married taxpayers. There are some partial tax credits available if the MAGI exceeds the limits. (See below).

Q: Who was eligible for the $6,500 "move-up" homebuyer tax credit?
A: Current homeowners entering into a binding contract for the purchase of a primary residence (home for sale) between November 6, 2009 and midnight April 30, 2010, and have used their home being sold or vacated as a principle residence for five consecutive years within the last eight years. As with the $8,000 first-time homebuyer tax credit, the purchaser had until, September 30, 2010 to close on both the sale and purchase of the homes. The taxpayer's Modified Adjusted Gross Income is limited to $125,000 for single taxpayers and $225,000 for married taxpayers. There are some partial credits available if the MAGI exceeds the limits.

Q: If a Move-Up Home Buyer entered into an agreement to buy a home prior to the new stimulus but has not yet closed on the new home, were they eligible for the $6500 tax credit?
A: Yes. The move-up home buyer tax credit goes into effect for purchases after the date of closing.

Q: What is a tax credit?
A: A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means a taxpayer who owes $8,000 in federal income taxes and who receives a $8,000 tax credit would owe nothing to the IRS. If the taxpayer owes $1,000 in federal income taxes and uses the new tax credit, they would receive a $7,000 refund. This is called a refundable credit.

Q: The tax credit is refundable. What does that mean?
A: “Refundable” means the credit can be claimed even if the taxpayer has little or no federal income tax liability to offset the credit. Typically, this involves the government sending the taxpayer a refund check for a portion or even all of the amount of the refundable tax credit.

Q: What is the definition of a first-time home-buyer?
A: The new law defines first-time home buyer as a buyer who has not owned a principal residence during the three-year period prior to purchase. For married taxpayers, the law tests both the home buyer and spouse. If one does not qualify, the married couple does not qualify.

Q: What type of home qualified for either type of tax credit?
A: Any home purchased by an eligible buyer as a principal residence qualified for the credit. This includes single-family detached homes and attached homes like condos and townhomes.

Q: How is the Buyer's Tax Credit amount determined?
A: Generally, the tax credit is equal to 10% of the purchase price up to the maximum tax credit amount.

Q: What is “Modified Adjusted Gross Income”?
A: “Modified Adjusted Gross Income” is defined by the IRS. To find it, a taxpayer must first determine “Adjusted Gross Income” (AGI). On IRS Form 1040 and 1040A, AGI is the last number on page 1 and is the first number on page 2 of the form. For Form 1040EZ, AGI appears on line 4. After you have the AGI, add certain amounts like foreign income, foreign housing deductions, student loan deductions, IRA contributions and deductions for higher education costs. Questions about the taxpayer’s MAGI should be directed to their tax preparer, CPA or attorney.

Q: If my Modified Adjusted Gross Income is above the limit, do I qualify for any tax credit?
A: It depends on your income. Partial credits are available for some first-time homebuyers whose MAGI exceeds the phase-out limits. The credit is totally unavailable for individual taxpayers with a MAGI above $145,000 and for married taxpayers filing joint returns with a MAGI above $245,000. As an example of the “phase-out”, assume a married couple has a MAGI of $160,000 ($10,000 above the $150,000 limit). Dividing the $10,000 by $20,000 ($20,000 is the set number for this calculation) equals 0.5. Subtract the 0.5 from 1 to get 0.5. To determine the partial credit, multiply $8,000 by 0.5 and you have $4,000. That’s the partial tax credit allowed in this example.

Q: Will I have to repay the tax credit?
A: No. If the taxpayer lives in the home as their principal residence for at least three years, there is no repayment. If not, the entire amount of the tax credit is recaptured upon sale of the property.

Q: What paperwork is required prior to or at the Closing?
A: None. Purchasers were required to produce a copy of their HUD-1 Closing Statement with the paperwork required to claim the tax credit, to be completed by the taxpayer or their tax preparer for their Federal Income Tax Return.

<>DISCLAIMER: Consult your Attorney, CPA and/or Tax Preparer for the legal or tax impact and consequences of this tax credit.

This information does not constitute the provision of legal or tax advice or professional consulting of any kind. Before making any decision or taking any action, you should consult a qualified professional advisor. This information is provided “as is” with no assurance or guarantee of completeness, accuracy, or timeliness.

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