A former boss of mine recently e-mailed me to ask if there were any down sides to the new 8,000 Homebuyers Tax Credit. As part of the Housing and Economic Recovery Act of 2008, the first-time homebuyer credit was enacted providing $8,000 as a tax credit to qualified homebuyers in 2009. The Home Buyers Tax Credit is a tax refund for 10% of a primary home’s purchase price (up to $8,000) if the home was purchase and closed on after January 1st, 2009 and before November 30th, 2009. The amount not used on your 2009 tax return will be refunded directly to you. To be eligible for the program, the government considers a first time home buyer as those people who have not owned a principal residence in the last three years. The tax credit is a great benefit to American homebuyers and Service members as well. There are several important things that you need to know in order to take advantage of the tax credit.
Must Close By November 30th. The main drawback of the tax credit is that it ends on the 1st of December. So, all home sales must be closed on by November 30th. Time is running out! You’ve got to start closing on your new house if you haven’t already in order to get the tax credit, and your real estate agent should be telling you all of this too if you are currently looking at homes. This is the big caveat that has a lot of people worried right now because it looks like Congress will not extend the program.
Must Live There Three Years. You must keep your new house for three years, or you will owe that $8,000 tax credit back to the IRS. Of course, this plays havoc with members of the military because they move around to new duty assignments very often. Typically, the average military family moves to a new job or base every three years. So, tread carefully when taking the tax credit.
If you claim the first-time homebuyer credit in 2009 and stop using the property as your main residence before the 36 month period expires after you purchase, you are required to repay the credit. Repayment of the FULL amount of the credit is due on your next income tax return for the year the home stopped being your principal residence. The full amount of the credit is reflected as additional tax on that year’s tax return.
Extension For Deployment? If you cannot buy a home before the November deadline and are deployed to a combat zone, you may get more time to buy a house and take the tax credit when you get home. The House of Representatives recently voted 416 to 0 to pass the “Service Members Home Ownership Tax Act of 2009″ which extends the current $8,000 first time homebuyer tax credit for another 12 months for members of the military, Foreign Service, and Intelligence Corp who served at least three months of qualified overseas duty in 2009.
No Taxable Income – That’s Ok. The credit is fully refundable and, if you qualify as a first-time homebuyer, having tax-exempt income will not preclude eligibility. Although there are maximum income limits for qualifying first-time homebuyers, there are no minimum income criteria. Thus, someone with no taxable income who qualifies as a first-time homebuyer may file for the sole purpose of claiming the credit for a refund. So, if you receive the money while you are down range while you do not have any taxable income, you can still file for the tax credit as well.
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This is a great tip for members in the military who want to use this cash incentive… three years is a long time in one place for most service members and their families! I hope that there are people who are in a situation that will allow them to lead their families into a new home, get the money, and actually be there for the full amount of time… but with the deployment tempo lately, there is no insurance for that.
Jerry
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