Nicholas H. Perrins, CPA
Shareholder, Taxation
nperrins@t-u.com

written by: Nicholas H. Perrins

The Worker, Homeownership, and Business Assistance Act of 2009 (the "Act") liberalizes and extends the first-time homebuyer tax credit (the "credit") for principal residence purchases made after the enactment date of November 6, 2009. The 2009 Act provides an exception to the definition of first-time homebuyer for long-time residents of the same principal residence and extends the credit to apply to principal residence purchases before May 1, 2010.

The refundable homebuyer credit first came about under the Housing Assistance Tax Act of 2008 (2008 Housing Act). The American Recovery and Reinvestment Act of 2009 (2009 Recovery Act) increased the credit to as much as $8,000 for qualified homes purchased after December 31, 2008 and before December 1, 2009. The 2009 Act extended the expiration date of the credit for homes purchased before May 1, 2010. For qualified homes purchased in 2009 and 2010, the maximum credit equals the lesser of (1) 10% of the purchase price of the principal residence or (2) $8,000 ($4,000 for married filing separate) for first-time homebuyers and $6,500 ($3,250 for married filing separate) for long-time residents. However, no credit is allowed for the purchase of any residence acquired after November 6, 2009, if the purchase price exceeds $800,000, as added by the 2009 Act.

The credit is refundable, which means it can be used to offset the taxpayer's entire federal income tax liability (regular tax and AMT) with any remaining credit refunded. For qualified homes purchased in 2008, the taxpayer must repay the credit amount over a 15-year period, starting with the second year after the year the credit is claimed. The repayment requirement does not apply for qualified homes purchased after December 31, 2008, and before May 1, 2010, provided the home remains the taxpayer's principal residence for 36 months after the purchase date.

The Act raises the modified AGI phase-out range from $125,000 to $145,000 ($225,000 to $245,000 for joint filers) for the year of purchase.

For purchases made after November 6, 2009, any taxpayer that has maintained the same principal residence for any five-consecutive-year period during the eight-year period ending on the date of the purchase of a new principal residence is treated as a first-time homebuyer eligible for a maximum credit of $6,500 (long-time residents).

For 2009, the credit is not available for the purchase of a residence under the following circumstances:

1. The taxpayer is a nonresident alien.
2. The taxpayer disposes of the home, or stops using it as a principal residence before the end of the tax year in which it was purchased.
3. The taxpayer is a dependent of another taxpayer (for residences purchased after November 6, 2009).
4. The taxpayer fails to attach an executed copy of the residence settlement statement to the return on which the credit is claimed.

Also, for residences purchased after November 6, 2009, the taxpayer must be 18 years of age as of the date of purchase.

For qualified homes purchased after December 31, 2008, the credit must be recaptured only if the taxpayer disposes of the residence, or the residence ceases to be the taxpayer's principal residence, during the 36-month period beginning on the date of purchase. Individuals who purchased homes on or before that date must recapture the credit ratably over 15 years (with no interest charge), beginning in the second taxable year after the taxable year in which the home is purchased.

This article is provided for general guidance only, and does not constitute the provision of legal, accounting or other professional advice of any kind. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. Please consult with your Tarpley & Underwood tax professional before taking any action.