JK Harris and Company, Creating Lifetime Clients

Recent legislation, The Worker, Homeownership and Business Assistance Act of 2009, just passed, extended and expanded the first-time homebuyer credit allowed by previous Acts.

• Under the new law, a first-time homebuyer must buy and enter into a binding contract to buy a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. This is an extension of the previous bill, which said you must close by November 30, 2009 to claim the credit. Any qualified purchase in 2010 may be claimed on either the homebuyer’s 2009 tax return or 2010 tax return. The credit is $8,000, which is a refundable credit.

• Included in this bill, a long-time homeowner buying a replacement principal residence can claim a refundable credit of up to $6,500, ($3,250 for a married individual filing separately). To qualify for this credit, the taxpayer must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased.

• For homes purchased after November 6, 2009, the credit will begin to phase out for single taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 and for married filing jointly, $225,000 and $245,000. Qualifying homes purchased on or before November 6, 2009, the phase out is $75,000 to $95,000 for single taxpayers and $150,000 to $170,000 for joint filers.

Homebuyers who purchased in 2008, 2009, and 2010 may still be able to take advantage of the first-time homebuyer credit.

The credit is available under The American Recovery and Reinvestment Act of 2009 and The Worker, Homeownership and Business Assistance Act of 2009. The credit:

• Applies only to homes used as the taxpayer’s principal residence
• Reduces a taxpayer’s tax bill or increases the refund, dollar for dollar
• Is fully refundable, which means the credit will be paid out to eligible taxpayers even if they owe no tax or the credit is more than the tax owed
• Will only be refunded if no outstanding balances for prior years.

If there is a back tax debt, the credit will be applied first to the back taxes you owe and any remaining balance will be sent as a refund. This may allow some taxpayers to get their back tax debt paid off.

For homes purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer’s main residence within three-year period following the purchase.