The newly passed Worker, Homeownership, and Business Assistance Act of 2009 extends the first time homebuyer tax credit and expands the credit to some existing homeowners.

The first time homebuyer tax credit originally applied only to purchases made prior to December 1, 2009 but the new extension applies to all purchases made prior to May 1, 2010. A new provision also qualifies all principle residences purchased before July 1, 2010 as long as the taxpayer enters a binding agreement prior to May 1, 2010 to close on the purchase before July 1, 2010.

The amount of the refundable tax credit remains at the lesser of $8,000 or ten percent of the principle residence’s purchase price. The phase out amounts have been increased so that the credit now phases out for individuals with adjusted gross income between $125,000 and $145,000 or for joint filers with adjusted gross income between $225,000 and $245,000 in the year of the purchase. Residences with a purchase price exceeding $800,000 no longer qualify for the credit.

The Act also expands the credit to some homebuyers who previously did not qualify for the credit. Homeowners who purchase a subsequent principle residence are considered first time homebuyers for purposes of the first time homebuyer credit if they qualify as “long-time residents.” A “long-time resident” is any homeowner who has maintained the same principle residence for any five-consecutive year period during the eight-year period ending on the date of the purchase of the subsequent principle residence. For homebuyers who qualify in this way the maximum credit is $6,500, or 10% of the purchase price, whichever is less.

As before, a taxpayer may elect to treat the home purchase as made on December 31 of the previous year in order to claim the credit on the prior year’s tax return.

Also note, the new law includes a number of new anti-abuse rules.  The most important of these are:

• Beginning with the 2010 tax return, a properly executed copy of the settlement statement must be attached to the tax return
• For purchases after Nov. 6, 2009, the credit can’t be claimed unless the taxpayer is 18 years or older (or the spouse is 18 or older)
• For purchases after Nov. 6, 2009, a dependent of another cannot claim the credit
• The credit cannot be claimed if the home is purchased from a related person to the buyer or spouse.

Michael Anderson

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