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Update on First-Time Homebuyer Tax Credit

Articles from The Massachusetts Focus

Newsletter of Stewart Title Guaranty Company, Massachusetts Offices
Winter 2009, Volume 8, Number 2

Update on First-Time Homebuyer Tax Credit
by Stephen R. Dinsmore, Vice President, New England Division Sales Manager

On November 6, 2009, new federal legislation (HR 3548, the Worker, Homeownership and Business Assistance Act of 2009) was signed into law that extends and expands the first-time homebuyer tax credit. The new law extends the existing federal tax credit through June 30, 2010, which otherwise would have expired on November 30, 2009. It also creates a new credit for people who already own a home and purchase a replacement principal residence.

This new law was designed to give an added boost to the housing market and should be well received by your clients who are potential homebuyers as well as your realtor and lender contacts. In our ongoing efforts to assist you with your business, Stewart Title would welcome the opportunity to help you structure a marketing plan designed to take advantage of the new law. Please feel free to use the following summary of the available tax credits in your marketing efforts and let your Stewart Title agency representative know if we can be of further assistance.

First-Time Homebuyers: The credit remains at 10% of the purchase price up to a maximum of $8,000. A qualifying first-time homebuyer must purchase the home as their principal residence and must not have owned a home in the previous three years. Under the new law, an eligible taxpayer must purchase or enter into a binding contract to purchase a principal residence on or before April 30, 2010, and close by June 30, 2010. The new law also increases the income limits (see details below) for homes purchased after November 6, 2009, allowing buyers with higher incomes to qualify for the credit.

Existing Homeowners: The new law also creates a new tax credit for existing homeowners. This credit is 10% of the purchase price up to a maximum of $6,500 (up to $3,250 for a married individual filing separately). A qualifying homeowner must have owned and lived in a primary residence for five consecutive years at any time during the eight years preceding the purchase of the replacement home. This credit is designed for homeowners who want to move up to a larger home as well as those looking to downsize.

The following requirements apply to both credits:

  • The home must be owned and used as the taxpayer’s principal residence.
  • Buyers must enter into a binding contract on or before April 30, 2010, and close by June 30, 2010.
  • The income limits have been raised for homes purchased after November 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income between $125,000 and $145,000 and between $225,000 and $245,000 for joint filers. The lower limits under the old law of $75,000 to $95,000 for individuals and $150,000 to $170,000 for joint filers still apply to purchases on or before November 6, 2009.
  • For homes purchased after November 6, 2009, the purchase price cannot exceed $800,000. There was no price limitation under the old law.
  • Buyers must live in the home for at least 36 months or the credit will, in most cases, need to be paid back.
  • The credit will be paid to eligible taxpayers even if they owe no tax or the credit is more than the tax owed.
  • For homes purchased in 2009, homebuyers can claim the credit on either a 2008 or 2009 tax return. Although the credit cannot be claimed before the closing date, homebuyers who closed after April 15, 2009, can still claim the credit on a 2008 tax return by way of an extension of time or an amended return.
  • The credit is claimed using Form 5405. New safeguards imposed under the new law to prevent fraud now require that a copy of the HUD-1 settlement statement be filed with this form.