First-time Homeowner Credit Extended and Expanded

The first-time homeowner credit has been extended and expanded.  On November, 6, 2009, President Obama signed the “Worker, Homeownership, and Business Assistance Act of 2009.”  This act extends the first-time homeowner credit for taxpayers who have had no ownership interest in a principal residence for the past three years.  In order to receive the credit, the taxpayer must enter into a binding contract for the purchase before May 1, 2010 and must close on the purchase before July 1, 2010.

In addition, the act includes a $6,500 credit to taxpayers who already own a principal residence.

A taxpayer who has owned and used the same principal residence for five of the past eight years qualifies for this credit.  The new home must be under contract before May 1, 2010 and the closing must occur before July 1, 2010.

Like the existing $8,000 credit, this amount is refundable and does not have to be repaid.  Refundable means that you will receive the total amount of the credit you are qualified for even if your tax liability is less than the credit amount.  For example, if your tax liability is $5,000, the credit would reduce that to zero and refund you $3,000 plus any withholding that occurred during the year.

For sales occurring after November 1, 2009, the full credit is available to single taxpayers whose income is under $125,000.  For couples filing a joint return, the limit is $225,000.  Above these limits, a partial credit may be available.

For homes purchased after December 31, 2008, the buyer may treat the purchase as occurring on December 31 of the prior year.  In other words, if a home is purchased during 2009, it may be treated as occurring on December 31, 2008; a home purchased in 2010 may be treated as occurring on December 31, 2009 for tax purposes.

Due to widespread fraud in the current credit, a documentation requirement has been added.  In order to receive the credit, a properly executed copy of the closing (settlement) statement must be attached to the return.

Anyone who has claimed the credit in the past and was not eligible for the credit should file an amended return, returning the credit to the IRS.  Numerous instances of fraud in claiming the credit have surfaced, and the IRS is aggressively pursuing these cases.