REPEAT HOME BUYER TAX CREDIT From the Worker, Homeowner and Business Assistance Act of 2009 How much is the 10% of the cost of the home. credit? Maximum amount is $6,500. Basic requirements: Home owner who has owned and lived in a home for at least five consecutive years of the eight years prior to the purchase date. Who is May not purchase from a family member who is an ancestor or lineal eligible? descendent. Income limits: (note increased income limits) Those making no more than $125,000 (individual return) or $225,000 (joint return) may receive the full amount. If more than $145,000 (indiv) / $245,000 (joint), buyer is ineligible. Those between these two points can receive a partial payment. Any single family residence. Must be used as a principal residence replacing current residence. What type of Transaction must close between November 6, 2009 and June 30, 2010. property can be If closed after April 30, 2010, binding contract for purchase must purchased? be signed by April 30, 2010. Price may not be over $800,000. How is the Claimed as a part of the buyer’s federal tax return. payment Complete IRS Form 5405. received? Attach copy of HUD-1 Settlement Statement (received at closing). Refundable: (note required Not a reduction of your taxable income. documentation) Reduces your tax liability. (See FAQ on the back for examples.) Where can I get IRS website: www.irs.gov. more Your tax advisor- or let me know if you need a referral for a tax advisor! information? Information courtesy of: Kristin Carroll Sente Mortgage and 901 S. Mopac, Building IV, Suite 125, Austin, TX 78746 512.637.9900 Kristin.Carroll@Sentemortgage.com First Time Home Buyer Tax Credit Frequently Asked Questions 1. How is the partial tax credit determined? First, subtract either $125,000 (for an individual) or $225,000 (for joint filers) from the income of the borrower(s). Then divide the remaining amount by $20,000—the result should be a fraction. Subtract that fraction from 1. Then multiply the result times 10% of the cost of the home (maximum $6,500), and the result is the partial credit. For example: a couple who files jointly makes $235,000. The calculation would be: $235,000 - $225,000 = $10,000 $ 10,000 / $20,000 = .5 1 - .5 = .5 .5 * $6,500 = $3,250 They would be eligible for a $3,250 credit. 2. Does the credit amount differ if you file jointly or separately. No. The credit is $6,500 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as "married filing separately" (in effect, filing two returns), then the credit of $6,500 is claimed as a $3,250 credit on each of the two returns. 3. What happens if I purchase a home with someone I’m not married to? IRS Notice 2009-12 provides guidance for allocating the homebuyer credit between taxpayers who are not married. 4. How does a buyer apply for the credit? There is no authorization or approval required. Eligible purchasers will claim the credit by filing IRS Form 5405 with their tax return. A copy of the HUD-1 Settlement Statement provided to buyers at closing must be attached to Form 5405. 5. Can I use the credit as part of my down payment? The IRS permits you to reduce your withholding by filing a new W-4 with your employer or reducing your quarterly tax payments. The additional money in your paycheck can be saved for your down payment. IRS Publication 919 contains rules and guidelines for income tax withholding. 6. What is the difference between a tax credit and a tax deduction? A tax deduction is subtracted from the amount of income that is taxed. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $6,500 in income taxes and who receives a $6,500 tax credit would owe nothing to the IRS. 7. What does refundable mean? That means the credit can be claimed even if there is little or no tax liability. Here are some examples of how this would work: If you owed $6,500 in taxes, after the $6,500 credit you would owe nothing. If you owed $3,000 in taxes, after the $6,500 credit you would receive a refund of $3,500. If you showed a refund a $1,000, after the $6,500 credit you would receive a refund of $7,500. 8. If I buy a home in 2010 can I claim the credit on my 2009 taxes? Yes. The law allows taxpayers to choose to claim qualified home purchases made in 2010 as if the purchase occurred on December 31, 2009. If the purchase is made before taxes are filed, you can just file the appropriate forms. If your taxes have already been filed, you can file an amended tax return. Check with your tax professional about the appropriate way to file for the credit.