The First Time Homebuyer Tax Credit At A Glance
What is the credit? How much is the credit? What is a tax credit? How does it work? What clients are eligible to claim the tax credit? What types of homes qualify? Can my clients take advantage of the credit now instead of waiting until filing? Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties. --------------------------------------------------------------------------- David Ross and MG&C's Real Estate Law Team David's areas of practice include residential and commercial real estate, commercial transactions and business formations throughout South Carolina. At MG&C, David and his team represent clients in a broad range of commercial and residential real estate transactions. Our goal is to make your real estate transactions as smooth and efficient as possible. For more information, call 803.779.2300 or visit mgclaw.com. This email is published as a service to our clients and friends. It is intended to provide general information and does not constitute legal advice regarding any specific situation.
The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time homebuyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009.
The credit is 10 percent of the purchase price of the home, with a maximum available credit of $8,000 for either a single taxpayer or a married couple filing a joint return, but only half of that amount for married persons filing separate returns.
A tax credit is a dollar-for-dollar reduction applied directly to taxes owed.
This means if your clients buy a home for $80,000 or more, they can deduct the full $8,000 tax credit from the amount owed to the I.R.S. If they usually get a refund on their taxes—and they qualify for the maximum tax credit—they can add another $8,000 to that refund for 2009.—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the determination of whether there is a completed sale would depend on the facts and circumstance of the particular case, more specifically, when closing occurred and when the deed was recorded.
The law defines "first-time homebuyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the homebuyer and his/her spouse. For example, if an individual client has not owned a home in the past three years but their spouse has owned a principal residence, neither would qualify for the first-time homebuyer tax credit.
The tax credit is also limited to individuals with adjusted gross incomes of $75,000 as a single person or $150,000 filing jointly. There is a phase-out (reduction in credit) for single incomes between $75,000 and $95,000, and for couples filing jointly with incomes between $150,000 and $170,000.
First-time homebuyers purchasing any kind of home
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take-home pay. This money can then be applied towards the down payment or closing costs.