On November 6, 2009, the Worker, Homeownership and Business Assistance Act of 2009 was enacted extending the first time homebuyer credit, changing some of the criteria and limitations and adding a new credit for current homeowners who purchase a new home.  Following are criteria and limitations previously established which continue to apply and revisions provided in the new act:

• a)    The credit applies to qualifying principal residences purchased before May 1, 2010.  However the credit will extend to qualifying principal residences purchased prior to October 1, 2010 (as amended by the Homebuyer Assistance and Improvement Act of 2010) provided that a written, binding contract to purchase said residence was entered into before May 1, 2010. The term “purchase” generally is defined as closing and taking ownership of the residence (thus allowing the individual to occupy the home).
• b)    A first time buyer is defined as an individual and/or spouse who have had no home ownership interest 36 months prior to the first home purchase date.
• c)    The home purchased must be used by the taxpayer and/or spouse as their principal   residence.
• d)    The credit for a first time homebuyer remains at 10% of the purchase price of the primary residence not to exceed $8,000 ($4,000 if married and filing separately).
• e)    For residences purchased after November 6, 2009, the credits are phased out as a single taxpayer’s Adjusted Gross Income (AGI) increases from $125,000 to $175,000 ($225,000 to $245,000 for joint filing taxpayers).
• f)     For purchases after November 6, 2009, no credit is allowed unless the taxpayer or taxpayer’s spouse (if married) has attained age eighteen (18) as of the purchase date.
• g)    For residences purchased after November 6, 2009, no credit is allowed to an otherwise qualifying individual if a dependency exemption for said individual is allowable to another taxpayer.  For example:  Andy is 20 years old, his parents claim him as a dependent (in accordance with tax regulations), and Andy purchases his first primary residence in December, 2009; Andy can not claim the first time homebuyer credit.
• h)    Prior to this act a qualifying purchase did not include a principal residence purchased from parties related to the taxpayer; effective with this act for purchases after November 6, 2009, this disqualifier is extended to also include purchases of a primary residence from parties related to the taxpayer’s spouse.
• i)    After November 6, 2009, no credit is allowed for any residence if the purchase price of the residence exceeds $800,000.
• j)    Effective for tax returns ending after November 6, 2009, no credit is allowed unless a copy of the settlement statement is attached to the tax return.
• k)    Individuals who claim the credit on their 2009 tax return, regardless of when the home was purchased, may not file electronically; they must file a paper return.  Beginning with 2009 tax returns, individuals must use the newly revised Form 5405 (revised late December, 2009) to claim the credit.  Individuals who purchase a primary residence after November 6, 2009 must also use the revised Form 5405 to claim the credit.
• l)    Effective for residences purchased after November 6, 2009, a new tax credit of 10% of the cost of the principal residence not to exceed $6,500 ($3,250 if married filing separate) applies to an individual who (along with the individual’s spouse if married on the date of the purchase) has owned and used the same residence as the individual’s principal residence for any five consecutive years out of the eight years prior to purchase.  The purchased residence for which the individual claims the credit must be the individual’s primary residence.  To claim the credit the individual is not required to sell or dispose of the former primary residence and there is no requirement that the purchased primary residence be a “move-up” property; the new primary residence can be less expensive than the former residence. 
  For example:  Max and Rhonda lived in their principle residence since April, 2003.  In September, 2008 Rhonda’s employer transferred her to another state and the couple relocated to the new state.  Max and Rhonda rented an apartment at their new location while they tried to sell their old residence.  In March, 2010 they purchased a primary residence for $175,000 in the new state.  Max and Rhonda qualify for the $6,500 tax credit as they lived in their prior residence for 5 years and 5 months consecutively during the eight year period between March 2002 and March, 2010.
• m)    The tax credit does not have to repaid, unless the taxpayer(s) receiving the credit sell the residence or fail to use the home as a principal residence within 36 months from the purchase date.  A homeowner’s death does not trigger a recapture and transfer as part of a divorce proceeding may not trigger a recapture (subject to certain conditions).  Special credit recapture exemptions are now available for individuals or individuals’ spouses who receive government orders for “qualified official extended duty”.  This includes a member of the uniformed services, a member of the Foreign Services of the United States or an employee of the intelligence community.
• n)    A qualifying homebuyer may elect to treat a purchase after 2008 as a purchase on December 31st of the preceding calendar year.  For example:  June purchases and closes on her home in October, 2009.  She may elect to either: (1) amend her 2008 tax return to claim the tax credit; or (2) claim the tax credit on her 2009 tax return.   Caution:  If the residence was purchased after November 6, 2009 and the homebuyer elects to amend their 2008 tax return to claim the credit, the individual must use the revised Form 5405 as noted in Item (k) to claim the credit.
• o)    Under the first revision of the National First-Time Homebuyers Credit signed into law February 17, 2009 and affecting “first-time homebuyers” who purchased a home after December 31, 2008 but before December 1, 2009, the credit was available to unmarried individuals who purchased a home together and qualified for the credit.  This revision, effective for purchases after November 6, 2009, does not specifically address unmarried individuals and the Internal Revenue Service has not issued guidance at this time.
• p)    The credit is refundable which means the government will refund the portion of the credit exceeding the taxpayer’s tax liability.

This enactment increases this tax credit’s complexity due to timing and revised qualifiers.  Please contact our office to ensure conformance with the tax regulations and optimize tax savings.

Energy Efficient Products (doors, windows, etc.)
In tax years 2006 and 2007 there were several tax credits available to individual taxpayers for investing in energy efficient products for their home. While no such credits were available in 2008, a recent tax law provides for tax credits on qualified items placed in service in existing homes in 2009 and 2010. Examples of items which may qualify are exterior doors, windows, central air & heat units, hot water heaters, heat pumps, skylights, insulation, main air circulating fans and certain types of roofs. In most cases there are energy efficiency ratings on the items which must meet or exceed certain levels to qualify for the tax credit. A complete list of items and their rating thresholds can be viewed at www.EnergyStar.gov. Installation costs may be included when computing the credit for some items (a/c & heat units, hot water heaters, etc.) but not others (doors, windows, insulation and roofs).

The maximum credit previously allowed (2006/2007) was $ 500 but that amount has been raised to as high as $ 1,500 (2009 & 2010 combined) under the new rules. These tax credits are non-refundable, meaning they can be used to reduce your federal income tax but not below zero. For example, if your unadjusted income tax is $ 800 and your tax credits amount to $ 1,000 the tax is reduced to zero and you ‘lose’ the $ 200 difference.

Note that these credits apply only to improvements to an individual taxpayer’s primary residence and not to rental property.

Renewable Energy Systems
Tax credits are also available for larger, more complex renewable energy systems (i.e. solar or wind) placed in service through December 31, 2016. The rules for these credits are complicated and we encourage you to contact our office for additional information.

If you are planning to install energy efficient products or systems please give us a call or email us so we can help you maximize your tax savings.

There are two sections of the National First-Time Homebuyer Credits, each applying to a specific time period for “first-time homebuyers”.

Both credits have the following same criteria:

a. A first time buyer is defined as a taxpayer and/or spouse who have had no home ownership interest 36 months prior to the first home purchase date.
b. The home purchased must be used by the taxpayer and spouse as a principal residence.
c. The credits are phased out as a single taxpayer’s Adjusted Gross Income increases from $75,000 to $95,000 ($150,000 to $170,000 for joint filing taxpayers).
d. The credit is refundable which means the government will refund the portion of the credit exceeding the taxpayer’s tax liability.

The initial National First-Time Homebuyers Credit signed into law, July 30, 2008, applies to “first-time homebuyers” who purchased a home after April 8, 2008 but before January 1, 2009.

a. A refundable tax credit of up to $7,500.00 or 10% of the home price whichever is less.
b. The tax credit is to be repaid with no interest, prorated over 15 years and is added to tax return beginning in the second tax year after the tax year the home is purchased.
c. If taxpayer sells the home before the full credit is recaptured, the amount remaining to be recaptured is added to the next tax filing after sale of home.

The amended National First-Time Homebuyers Credit signed into law, February 17, 2009, applies to “first-time homebuyers” who purchased a home after December 31, 2008 but before December 1, 2009.

a. A refundable tax credit of up to $8,000.00 or 10% of the home price whichever is less.
b. The tax credit does not have to repaid, unless the taxpayer(s) receiving the credit sell the residence or fail to use the home as a principal residence within 36 months from the purchase date. A homeowner’s death does not trigger a recapture and transfer as part of a divorce proceeding may not trigger a recapture (subject to certain conditions).
c. The credit extends to two or more unmarried individuals who purchase a home and qualify for the credit. The aggregate credit total may not exceed $8,000.00 and the co-owners may allocate the credit in any reasonable manner. However a co-owner who does not qualify for the credit (i.e. exceeds income threshold or owned a residence in last 36 months) may not take any portion of the credit. But, if one unmarried co-owner does not qualify for the credit, the entire credit can be allocated to the co-owner who qualifies.
d. The taxpayer(s) may elect to: (1) take the credit on their 2008 tax return(s) by amending such return(s); or (2) take the credit on their 2009 tax return(s).

Please call or email our office if you have any questions concerning the National First-Time Homebuyers Credit or need assistance in filing for the credit.