Existing Homeowners now Eligible for Tax Credit: U.S. Extends First Time Buyer Savings to Move-Up Buyers

In order to stimulate the lagging economy by encouraging home sales, the United States government has passed the Worker, Homeownership and Business Assistance Act of 2009.

In addition to extending the first-time homeowner tax credit, this bill adds a credit for existing homeowners who want to buy a new residence. There are a number of restrictions in the bill, so not everyone will qualify for the credit, but those homeowners who do not qualify may still find they have more potential buyers for their current homes. .

Extension of the Home Buyer Credit

Homebuyers have until April 30, 2009 in order to sign a contract for a new home, and the home must close by July 1, 2010. The amount of the credit for existing homeowners is $6.500, ($3,250 for married taxpayers filing separately.)

In order to prevent investors and “flippers” from obtaining the credit, buyers need to have lived in the same residence for five years. However, those who recently bought homes and wish to sell may still qualify, because the requirement is that the owner live in the home any five years out of the last eight years before the qualifying home is purchased.

A possible qualifying scenario is that a homeowner could have lived in a residence from 2002 to 2007, moved in 2007, and wish to buy a new home in 2010. Under the guidelines on the IRS website, this situation would still qualify for the credit.

It is important to note that this is a tax credit, which directly reduces the amount of tax, as opposed to a deduction, which reduces income on which a percentage of tax is assessed.

Income and Other Qualifications for the Tax Credit

Not all taxpayers will qualify for the credit. The IRS specifies “the credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers.”

Purchasers need to be at least 18 years old, and cannot be a dependent on anyone else’s return. The purchase price of the home must be less than $800,000. .

Pros and Cons of Using the Tax Credit

Despite the helpful financial impact of the tax credit, many homeowners may not be able to take advantage of the situation. The difficult economy has caused many properties to fall in value, and move-up buyers will still need to sell their current homes at an acceptable price in order to have a down payment and to afford mortgage payments.

Incurring closing costs on both sale of a current home and the new residence will likely exceed the credit. Taxpayers will want to closely review the benefits of moving during this difficult time.

01 Feb

The $7500 First-Time Homebuyers Tax Credit: What You Need to Know about Qualifying and Filing for this Incentive

by Arbitrage Bands | in Tax, Tax Credit | on February 1, 2018

To offer incentive for homebuyers who purchased or plan to purchase their first home in this adverse economic climate, Congress included up to a $7,500 tax credit as part of the Housing and Economic Recovery Act of 2008.

It’s important to understand the requirements, qualifications, and filing instructions to determine whether or not one can take advantage of this credit.

The Tax Credit is Actually an Interest-Free Loan

One of the greatest misconceptions about the First-Time Homebuyers Credit is that, as it currently stands, it must be paid back over a period of 15 years. While the U.S. Congress is, as of January 2009, deliberating removing the requirement to pay back the credit as part of a new economic stimulus bill, it is important to know that unless new legislation is passed, this money must be paid back in-full over 15 years.

The Tax Credit is not Always $7,500

$7,500 is the maximum allowable credit that can be given to a first-time homebuyer. To qualify for the credit in this amount:

The purchased home must be the buyer’s primary residence; vacation homes and rental properties do not qualify.
The buyer must not have owned a home in the three years prior to the purchase date of this home. This means that a person who has at some point previously owned a home, but has not owned a home in the three years prior to the purchase date of the qualifying home, can also file a credit.
The buyer’s modified adjusted gross income, or MAGI, must not exceed $150,000 for married couples filing jointly, or $75,000 for buyers filing as single. This means that any married couple with a MAGI of less than $150,000 or an individual with a MAGI of less than $7,500 can qualify for the full $7,500 credit.

According to the IRS, partial credits are granted to individuals whose incomes fall into the “phase-out” category: “For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.”

Who Does Not Qualify?

Married couples whose MAGI exceeds $170,000 or individual taxpayers whose MAGI exceeds $95,000
Homebuyers who purchased the home from a close family member (parent, sibling, grandparent, etc.)
Homebuyers eligible to claim the Washington, D.C., first-time buyers credit
Homebuyers who sold their home before the end of the year
First-time homebuyers who purchased their home before April 8, 2008, or after July 1, 2009.

How to Claim the Credit

To claim the credit, IRS Form 5405 must be filled out and submitted when taxes are filed. Many online tax filing services, such as TaxSlayer, include the form with their online filing process.

The information in this article is subject to change as Congress evaluates whether to extend the credit or remove the requirement that it be paid back. Keeping tabs on the economic stimulus bill before the Senate at present time is the best way to stay current on any changes to this credit.

27 Nov

A New Tax Credit for First-Time Buyers: Confusion Clears as Congress Finalizes Stimulus Act

by Arbitrage Bands | in Banks, Credit Card Debt, Credit Rating, Tax, Tax Credit | on November 27, 2017

But there’s still some help for homeowners in the American Recovery and Reinvestment Act of 2009, the final version of the hotly debated economic stimulus bill that both the Senate and House passed last week.

The new credit, though, is far less inclusive and much less generous than the $15,000 version that everyone was hoping for. The new credit checks in at $8,000, and is only available to first-time home buyers.

Help, Just Not as Much of it

The $15,000 tax credit would have applied to all home buyers who purchased a primary residence within one year of the recovery act’s passage. And in a true bonus for buyers, the $15,000 credit required no payback.

The new $8,000 credit has its own positives and negatives. On the negative side, it is only available to first-time buyers purchasing a primary residence from Jan. 1 to Dec. 1 of 2009. And if these first-time buyers happen to sell their homes within three years of purchase, they are required to pay back the entire $8,000 tax credit.

That’s the bad news. On the good side, the $8,000 credit, like the proposed $15,000 version, does not have to be paid back. First-time buyers claim the tax credit on their tax returns. This reduces their tax liability. If the credit is higher than this liability, the unused credit is sent as a check to the first-time buyer.

Will it Help Invigorate the Housing Industry?

The big question now is whether this new version of the tax credit will provide a much-needed boost to the housing industry.

The real estate market certainly could use some help. Home sales across the country dropped 5.9 percent in the fourth quarter of 2008 from the same period one year earlier, according to the National Association of REALTORS. The association also reported that the median sales price of existing homes fell from a high point of $230,200 in July of 2006 to $175,400 in December of last year. That’s an awfully steep drop.

At the same time, RealtyTrac, an online provider of real estate data, reported that foreclosure filings in the United States hit 2.3 million in 2008. That represents a jump of 81 percent from one year earlier. It’s also the highest number of foreclosure filings that the country has seen in any year.

Support from the REALTOR Association

The National Association of REALTORS has given the recovery act its blessing. In a press release, the association writes that the home buyer tax provisions included in the approved bill could stimulate up to 300,000 additional home sales.

The association also said that the bill could help stabilize home values and possibly prevent some homeowners from facing foreclosure.

Pres. Barack Obama will probably sign the bill sometime this week, ending an emotional struggle to get the measure through both houses of Congress. There’s no way to know yet if the bill will have the kind of impact that the National Association of REALTORS is predicting.

23 Nov

Using the New First-Time Homebuyer Tax Credit: Do you Qualify for New Credit? Should you Take it if you Do?

by Arbitrage Bands | in Tax Credit | on November 23, 2016

The government’s new first-time homebuyer tax credit was included in the Housing and Economic Recovery Act, better known to most taxpayers as the $700 billion bailout passed by Congress late last year. The goal of the tax credit is simple: Government officials hope it boosts the flagging housing industry by encouraging people who are otherwise uncertain to make the investment of purchasing a home.

The new credit is open to those taxpayers who bought a home recently or are considering buying a residence soon. Buyers must not have owned a main home during the last three years to be eligible for the credit.

The measure has a short lifespan, with the credit only available for homes bought from April 9, 2008, to June 30, 2009, according to the Internal Revenue Service. It also comes with an important restriction: It only covers homes that its owners are using as primary residences. This means owners can’t claim vacation homes or second homes.

A credit, not a deduction

For taxpayers, the best news is that the first-time homebuyers credit is not a deduction, but a true credit, one that will reduce your income-tax liability on a dollar-for-dollar basis. Taxpayers who owe $8,000 on their federal income taxes and claim the full $7,500 credit, would then owe the government only $500.

All the news, though, is not so good. The biggest drawback is that the tax credit is actually a loan, as consumer site Bankrate.com reports. Taxpayers claiming it must pay back the federal government over a 15-year period. Taxpayers do this by adding their debt to their tax payments in future years in small amounts until the tax credit is finally paid off. There is another catch, though: Taxpayers who sell their homes before the 15-year repayment period ends will have to pay back the entire amount they still owe.

Not right for every taxpayer

The credit is a good option for new homeowners who are struggling to pay their bills and need a financial break now. But it’s not a credit that every first-time homebuyer should automatically take. Those who are doing well financially may want to reconsider claiming the credit now. They may get caught having to pay it back in future years when their incomes may have fallen.

The best decision is for taxpayers to meet with their accountants and financial planners before making a decision.

18 Nov

IRS 6500 Tax Credit for Home Purchase: Home Credit Rules – Existing Homeowners’ Federal Tax Incentive

by Arbitrage Bands | in Tax, Tax Credit | on November 18, 2016

The Worker, Homeownership, and Business Assistance Act (H.R. 3548), signed by President Barack Obama on November 6, 2009, extended federal unemployment benefits for some Americans, extended and enhanced the tax credit for home purchases, and gave businesses tax breaks through net operating loss carrybacks.

Existing Homeowners Can Get IRS 6500 Tax Credit for Home Purchase

In this article, learn more about the home buyer tax credit provisions of that act and find out when to expect revised Form 5405 to be available on irs.gov.

Extended Home Purchase Credit & 6500 Federal Tax Credit

H.R. 3548 builds upon previous legislation to extend and enhance tax credits available for home purchases in the United States. The Housing and Economic Recovery Act of 2008 originally established a $7,500 first-time home buyer tax credit, and the American Recovery and Reinvestment Act of 2009 enhanced that benefit, increasing the amount to $8,000 and changing the qualification and repayment rules. H.R. 3548 extends the $8,000 first-time home buyer tax credit into 2010 and opens the federal government incentive program to existing homeowners as well.

$7,500 & $8,000 First Time Home Buyer Tax Credits Before Extension

Individuals who purchased homes before November 7, 2009 must adhere to the qualification rules that existed before H.R. 3548 took effect.

To read detailed information about the rules that existed prior to the enactment of H.R. 3548, see the following two articles:

Government Incentive Program Changes – New 6500 Tax Credit Rules

For home purchase transactions that occurred after November 6, 2009, slightly different rules apply. The article $6,500 Tax Credit for Home Buyers discusses these changes in detail. To summarize, H.R. 3548 changed the following:

An age limitation was set
A maximum purchase price was set
New tax credit deadlines were established
Income limitations were raised (allowing individuals with higher incomes to qualify)
A proof of purchase documentation requirement was established

Review Rules for 2010 Home Credit in Revised Form 5405

Form 5405 should be used to claim all versions of the first time home buyer tax credit ($7,500, $8,000, and $6,500); however, the 2008 version should be used for home purchases made through November 6, 2009. The 2009 version (not yet released by the IRS as of January 6, 2010) should be used for home purchases made after November 6, 2009.

According to the IRS, the 2009 version of Form 5405 should be posted on irs.gov on or before January 8, 2010. Rules for the $6,500 credit should be described succinctly in this document.

Claim $8,000 & $6,500 Home Credits on 2009 or 2010 Tax Returns

Taxpayers who close on qualifying homes in 2010 can choose to claim the $8,000 or $6,500 tax credit on a 2009 or 2010 tax return. Anyone who files a 2009 tax return, then subsequently purchases a qualifying home, can file an amended 2009 federal tax return to claim the $6,500 home purchase credit (instead of waiting until the 2010 personal income tax return is due).

11 Nov

New Extended Home Buyer Tax Credit for 2009-10: Incentive for Both Potential and Current House Owners

by Arbitrage Bands | in Tax, Tax Credit | on November 11, 2016

Christmas came early for realtors and home builders this year as Congress approved an extension on the home buyer tax credit which now includes a tax credit for existing home owners who are looking to sell and purchase a different home. Between November 7, 2009 and April 30, 2010, qualified home buyers can receive a tax credit of up to $8,000 on their home purchase. The government hopes this extended legislation will continue to help stimulate the housing market as well as the economy.

Who can Apply for the Extended Home Buyer Tax Credit?

First-time home buyers who qualify will continue to receive a tax credit of 10% of the home’s purchase price up to $8,000. A first-time home buyer is a person who has not owned a home for at least three years. If married, the spouse cannot have owned a home in that time frame either.

Under the current homeowner section of the program, any person who currently owns a home and is looking to sell and buy another home or has recently sold a home and is thinking of buying may qualify for a tax credit up to $6,500. However, the current home has to be the person’s primary residence and they must have lived in the home at least five consecutive years in the past eight years. As with the first-time home buyer credit, qualifying is dependent upon income.

Income Qualifications

Income qualifications apply to both sections of the program. Incomes up to $125,000 a year for a single person and up to $225,000 for a married couple can qualify for the maximum tax credit. For a single person whose income goes beyond the $125,000 up to the maximum of $145,000, and married couples who earn over $225,000 up to the maximum of $245,000, they still can qualify for a lower tax credit. People who have incomes over the maximum amounts cannot qualify for the tax credit.

Additional Extended Home Buyer Tax Program Details

Homes that qualify for the Extended Home Buyer Tax Credit include townhouses, condos, co-ops and single-family residences, either new or existing properties. No home over the price of $800,000 can qualify. The tax credit will be allowed on purchases up to the April 30, 2010 deadline as long as there is a written contract to purchase the home and the closing occurs by July 1, 2010. The buyer must live in the home for at least three years. If the home is sold before the three year time period, the tax credit must be paid back in full.

The passing of the Extended Home Buyer Tax Credit program makes this the perfect time to purchase a home. With the high inventory of homes for sale across the country at affordable prices and the lower-than-average interest rates available, it is a good time for people to buy their first home or move up to another one. People taking advantage of this opportunity may finally be able to own the home of their dreams.

04 Nov

Canadian Home Renovation Tax Credit (HRTC): Detailed Information about the Government Incentive for Homeowners

by Arbitrage Bands | in Tax Credit | on November 4, 2016

For Canadians who want to improve the value of their homes, or a homeowner getting a house ready to sell for top dollar in 2016 (as the economy continues to improve), the tax incentive being offered this year is not to be missed.

As part of Canada’s 2015 federal budget, the government will be providing economic stimulus to the tune of almost 30 billion dollars. One of the measures included in this largesse is the Home Renovation Tax Credit or HRTC.

The new tax credit isn’t quite as confusing as it sounds. The easy way to think of it is like this

Homeowner pays the first $1,000 of renovation expenses (think of it like car, house or health insurance deductible)
15 percent of the remainder, up to a maximum of $10,000, can be claimed for the 2015 taxation year

There are certain parameters in place to determine whether one qualifies for the Canadian Government Home Renovation Tax Credit.

Taxpayer Eligibility

According to Canada Revenue Agency, eligibility is “family” based. For the purposes of this tax credit a family is defined as the primary homeowner, a spouse or common-law partner, and children if they are under 18 years of age at the end of 2015.

Dwelling Requirements

Generally, any dwelling that is owned and used by the taxpaying claimant. This includes a primary home, cottage, other secondary residence or any land that is part of the eligible dwelling. The operative words for this portion of the qualification is a dwelling that the homeowner and/or spouse, “own and use personally.”

Eligible Renovation Expenses

Improvements must be permanent in nature. Known as “fixtures” in real estate jargon, this includes anything that, if removed, would alter the nature of the dwelling. These improvements can include anything from carpeting and window coverings to a new roof or hot tub.

Also eligible are expenses incurred in relation to renovations such as permits, fees to contractors and tradespeople (plumbers, architects, electricians, etc). Be sure to keep receipts from home improvement centers and copies of contracts as these are required in order to claim the credit.

Ineligible Renovation Expenses

New furniture, tools, and appliances do not count as qualified expenses. Anything that can be removed from the home is not a qualified expense. There are a number of both included and excluded improvements and Canada Revenue Agency lists examples of both on their website.

Remember, if the expense incurred results in creating a fixture, something that is permanent in nature, it will most likely be qualified.

Time Limit for HRTC Credit

The expenditures must be made between January 17, 2015 and February 1, 2016. Any contract negotiated prior to January 17 can not be considered for the Canadian Home Renovation Tax Credit.

21 Oct

Congress Extends $8000 Homebuyer Tax Credit: New Tax Law Adds $6500 Credit to Repeat Home-Buyers and Homeowners

by Arbitrage Bands | in Tax Credit | on October 21, 2016

On November 6, 2009, President Barack Obama signed a law that extends all the way through to next spring time. The law states that first-time home buyers get a tax credit of up to $8,000. The new law also states that repeat home buyers can get a tax credit of up to $6,500. However; the government estimates that this will cost approximately $11 billion dollars to help boost the sales of homes and help the struggling economy.

What is Similar About the Past First-Time Home Buyer Law and the New One?

Just as before, first-time home buyers get a credit of as much as 10% of the cost of their new home, with a maximum of $8,000. The first -time home buyer law applies to those who haven’t owned a home for at least 3 years.

Home buyers may choose to claim their tax credit on their 2008 or 2009 returns, as for 2010 first-time home buyers, they may claim the credit on their 2009 or 2010 returns.
All individuals claiming the first-time home buyer tax credit must use their new home as a main residence for the next three consecutive years after the final purchase.
First-time home buyers are disqualified for receiving the tax credit if the purchase was made from an ancestor or beneficiary. This includes; parents, grandparents, children and grandchildren.

What Has Changed With the New First-Time Home Buyer Tax Credit Law?There are some basic rules for qualifying for the updated home buyer tax credit. In order to be eligible, the purchase of a home must coincide with the following deadlines and rules:

To qualify for the new tax credit, a home buyer must have signed the contract before May 1, 2010.
The home buyer must have closed the deal before July 1, 2010.
For home buyers who make purchases after November 6, 2009 that cost more than $800,000, they will not be eligible to receive a tax credit.

New Tax Law Adds $6500 Credit to Repeat Home-Buyers and Homeowners

The new first-time home buyer tax credit is now available to repeat home buyers, as well. Those who have resided in one specific home for at least 5 years, of the past 8 years, are now eligible for a home-buyer tax credit of as much as 10% of the cost of their new home purchase. However; the maximum credit allowed is $6,500 for repeat home buyers.

Income Rules for Extended Home Buyer Tax Credit Law

The allowed income has generously increased with the updated first-time home buyer tax credit law. Here are the income rules for the tax credit qualification:

Single tax payers have a varied limit of $125,000 and $145,000 of an adjusted gross income.
Married tax payers have a varied limit of $225,000 and $245,000 of an adjusted gross income.

Congress Extends $8000 Homebuyer Tax Credit

With the First-time homebuyer and existing homeowner tax credit, the President is hoping for a huge boost to the ever so struggling economical crisis with home sales. More individuals now qualify for a home buyer tax credit.

19 Sep

FAQ on the $8000 First Time Homebuyer Tax Credit: Get Questions Answered on 2009 Home Purchase Credit

by Arbitrage Bands | in Tax Credit | on September 19, 2016

President Obama signed the stimulus bill that pushed through a tax credit of up to $8000 for first time home buyers at the start of the term. Coming to the close of the eligible period there are talks about extending the measure, but there is no need to wait for the outcome of those talks.

Check the list of frequently asked questions below and capitalize on the credit now.

Who Can Qualify to Claim the First Time Homebuyer Tax Credit?

Only first time homebuyers who purchased within the eligible period can qualify. The definition of first-time home buyer refers only to persons who have not held title to property for at least three years prior to purchase of the current home. Married couples can only qualify if neither party has owned a home in the last three years.

What is the Eligible Period?

Only those who purchased homes between the period January 1 2009 to November 30 2009 are eligible to apply.

What Property Type is Covered?

The 2009 tax credit is applicable only to primary residences, which may be single family homes, condos, townhouses or co-ops. In the case of newly built homes, the ‘purchase date’ will be taken to be the date of first occupation and this must fall between the specified date ranges.

Is there an Income Limit for Claiming the Tax Credit?

Single buyers with annual incomes of up to $75,000 or married buyers with a combined income of up to $150,000 a year may qualify for the First Time Homebuyer Tax Credit.

How is it Calculated?

The tax credit is calculated as the lower of 10% of the value of the home or $8000.

What is the Process to Claim the First Time Homebuyer Tax Credit?

It can be claimed when filing the federal income tax return. IRS Form 5405 should be completed to determine the amount applicable and then this amount can be transferred to line 67 or the 1040 IRS Form for 2009 returns.

Is this on Top of Other Tax Returns for the Year?

Yes. This tax credit does not have to be juggled around other applicable tax credits and will not diminish eligibility.

Are there Any Special Conditions?

Buyers must be willing to hold the property for at least three years. If the property on which the tax credit is claimed is sold before that time, it will have to be refunded.

01 Jul

Home Tax Credit Safe Despite Election Threat: Liberals Promise to Keep Popular Measure if Elected

by Arbitrage Bands | in Tax Credit | on July 1, 2016

The Harper government introduced the tax credit as part of the January budget. It was designed to give the home renovation and construction sector a boost during the economic downturn.

Conservatives Argue Home Tax Credit Threatened By Election

The Conservatives introduced the Home Renovation/Repair tax credit as part of the January budget. The credit, good for work and supplies done between Jan. 27th, 2009, and February 1st, 2010 allows Canadians to get up to $1,350 back on work done while renovating or repairing homes or cottages. It’s proven to be one of the more popular measures included in the budget, and is forecast to cost $3 billion over the next five years.

The tax credit wasn’t approved by parliament in the original budget implementation bill last march in order to give Revenue Canada time to adjust its policies. It’s expected to pass in a separate bill sometime this Fall, which, could be derailed in the event of a federal election.

The tax credit plays a part in the argument against the election for Prime Minister Stephen Harper. In comments published by the Montreal Gazette, he restated his government’s commitment to the home renovation/repair tax credit: “This government is committed to that tax credit. It’s a good idea, and I would encourage all political parties to support it, and those that have supported it in the past, to continue to support it.”

Harper added his government would continue with the tax credit regardless of an election.

Liberals Say They’ll Keep Renovation/Repair Tax If Elected

The opposition Liberals accuse the Harper government of using the possible elimination of the tax credit to fear-monger. Spokespeople for leader Michael Ignatieff have committed the party to keeping if elected.

Toronto area Member of Parliament (MP) Bob Rae reaffirmed his party’s support. In comments published by the Canadian Press, he assured Canadians no matter what party forms a government, they’ll end up keeping it: “Those tax credits will be recognized by whoever the government is in 2010.”

Other unapproved measures include an increased benefit for first-time homebuyers, as well as a proposed increase to the workers income tax benefit. These measures are supposed to be introduced as part of a second budget implementation bill. Some media reports suggest the Conservatives will introduce it as early as September 14th; the first day of the Parliament’s fall session in an attempt to engineer their own defeat.

The Conservative Government, being a minority one, any financial bills are considered confidence matters. If all three opposition parties vote against the government, it will mean another election.

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