Realtors will love this

guest commentary by David Potts

On Friday, President Obama signed into law The Worker, Homeownership, and Business Assistance Act of 2009. Included in this tax act was an extension and modification of the First-time Homebuyer Credit.

The credit first saw life as a refundable credit equal to 10% of the purchase price of a house for first-time homebuyers up to $7,500 for homes purchased between April 8, 2008 and July 31, 2009. However, the credit had to be recaptured (paid back) over 15 years. This in effect was only a tax free loan. Next the credit was extended and modified so that first-time homebuyers could take a credit up to $8,000 that didn’t have to be paid back when houses were purchased after Dec. 31, 2008 and before Dec. 1, 2009. I discussed the details of this credit in this posting in The City Wire in June.

As of Friday, the First-time Homebuyer Credit has changed again.
• The First-time Homebuyer Credit is still 10% of the purchase price of a house up to $8,000, but there are many new and significant changes made to this credit.
The deadline to purchase a home as been extended from Nov. 30, 2009 to April 30, 2010. If you haven’t completed the purchase of your new home by April 30, 2010 but have entered a binding contract, you are allowed the credit as long as you close on the home by June 30, 2010.

• Under prior law the availability of the credit phased out for people with adjusted gross income between $75,000 and $95,000 ($150,000 and $170,000 for those whose filing status is married filing a joint return). The new law changes this phase out range to people with adjusted gross income between $125,000 and $145,000 ($225,000 and $245,000 for those whose filing status is married filing a joint return).

• A new group of people now qualify for the First-time Homebuyer Credit, those who aren’t really first time homebuyers. A long-time resident of the same principal residence can now qualify for the First-time Homebuyer Credit. However, the credit is limited to $6,500. To qualify as a long-time resident of the same principal residence you must have owned a home and used that home as your principal residence for any five consecutive year period during the eight year period ending on the date you purchased your new home.

• A new $800,000 limit on the purchase price of a house has been added. If the purchase price of your new house is $800,001 or above no credit will be allowed.

• The new law requires you to attach a “properly executed copy of the settlement statement used to complete such purchase.” (The First-time Homebuyer Credit proved easy money for some people. For many the temptation was too great and a great deal of fraud was committed by people filing fraudulent income tax returns claiming the credit. I suspect this requirement was designed to slow this trend down.)

• What The Worker, Homeownership, and Business Assistance Act of 2009 did not change was the requirement that you cannot buy a home from somebody you are related to and qualify for the credit and the requirement that you must maintain the new home purchased as your principal residence for three years or you have to pay the credit back.

• The new law extends eligibility for the First-time Homebuyers Credit to military and foreign service personnel and members of the intelligence community on qualified official extended duty an additional year, until April 30, 2011, to purchase a new home. Qualified official extended duty service is any period of extended duty while serving at a place of duty at least 50 miles away from the taxpayer’s principal residence or under orders compelling residence in government furnished quarters. Extended duty is any period of duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.

If you think you might be buying a house in the near future, consider buying now. Interest rates are still historically low and First-time Homebuyer Credit is a generous credit.

David Potts is a certified public accountant also accredited in business valuation. Owner of Potts & Company, Certified Public Accountants for more than 25 years, his practice focuses on small and medium size businesses and their owners in the areas of taxation, accounting and bookkeeping, business valuation and business advisory services. He is a Fort Smith native and a graduate of the University of Arkansas. You can follow more of his thoughts at ThePottsReport.com. Although every effort is made to provide you accurate and timely tax information, it is general in nature and not specific to your facts and circumstances. Consult a qualified tax professional to discuss your particular case.

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