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February
3, 2009
Tips & Trends
From
Rory S. Coakley on some of the latest real estate news and
happenings.
Homebuyer tax credit may not need to be repaid
under stimulus package
Should
you give the $7,500 homebuyer tax credit a second look?
Now that Congress may be on the verge of transforming
it into a true tax credit - one that never has to be paid
back - you just might want to do so.
On Jan. 15, the House Democratic leadership outlined its
$825 billion economic stimulus package, loaded with $275
billion in tax cuts and $550 billion in new spending on
health care, education, alternative energy and infrastructure
improvements.
Tucked
away in the tax section was a significant improvement
to last July's congressional effort to stimulate home
sales. That program offered a credit of up to $7,500 to
purchasers who had never bought a house or hadn't owned
one during the previous three years. To qualify, taxpayers
would need to close on a house between April 8, 2008,
and July 1, 2009.
But relatively few consumers were attracted to the plan
because unlike virtually all other federal tax credits,
this one had to be repaid in full to the IRS over a 15-year
period. In effect, the $7,500 was more like an interest-free
installment loan from the government than a straightforward
dollar-for-dollar reduction on buyers' tax bills.
Though final details on a revised credit are still subject
to negotiations between the House and Senate - and to
passage of the economic stimulus package itself - there's
a good chance that buyers who sought the credit in 2008,
and new purchasers in 2009, will be relieved of the repayment
requirement.
According to industry estimates, removing the repayment
rule could lead to an additional 202,000 purchases this
year. The National Association of Realtors is pushing
for the July 1 deadline to be extended to Dec. 31, opening
the door to even greater numbers of sales.
Meanwhile, the IRS has come out with two recent advisories
on the credit, plus a new Form 5405 for taxpayers interested
in claiming the $7,500 benefit, either for 2008 or 2009.
Download a copy of the form at irs.gov
in the publications and forms section.
Based on the latest IRS guidance, here's what you need
to know if you're thinking about buying a house this year
- taking advantage not only of low prices and record low
mortgage rates, but a temporary tax credit that may well
turn out to be nonrepayable:
-
The
$7,500 is available to singles, married couples filing
jointly and unmarried co-purchasers, provided they meet
the nonownership test for the previous three years.
Married couples filing singly can claim up to $3,750
each. Unmarried individuals can allocate the credit
on their filings according to their respective ownership
shares or capital investments in the house.
-
Only
principal residences - or in the IRS's words, "the one
you live in most of the time" - are eligible. No second
homes, investment properties or houses outside the United
States pass the test. However, the definition of "home"
extends far beyond conventional houses sited on lots.
It "can be a ... houseboat, housetrailer, cooperative
apartment, condominium or other type of residence,"
according to Form 5405. For example, if you buy a sail-
or powerboat with full living facilities, tie it up
at a marina, and make it your "main home," you should
be eligible to claim the credit, though you may want
to run all the specifics of your situation by your accountant
or tax adviser.
-
Even
if it's your first home purchase, you are not eligible
if your adjusted gross income is above $95,000 (single
filer) or $170,000 (married joint filers). Married couples
with incomes between $150,000 and $170,000 are eligible
for reduced credits, based on a phase-out schedule.
Single filers with incomes between $75,000 and $95,000
also are subject to reduced credit limits. District
of Columbia residents who are eligible for the city's
first-time homebuyer credit are barred from use of the
federal tax credit. Taxpayers who use tax-exempt mortgage
bonds issued by state or local governments to finance
home purchases also are ineligible.
-
You
can't claim the $7,500 credit if you buy your house
from a "related person," meaning a spouse, parents,
grandparents, children or a corporation or partnership
where you own more than 50 percent of the stock or capital
interests.
If you
pass all these tests, and complete the purchase by whatever
deadline Congress decides as part of the final stimulus package,
you should be able to take $7,500 off your federal tax bottom
line, and not worry about ever paying it back.
By Ken
Harney - National Housing
Real
Estate Vocabulary Builder:
Debt:
An amount owed to another.
Deed:
The legal document conveying title to a property.
If you would like to suggest a topic for comment in one
of our future emailers, please let me know. You can always
reach me at rory@coakleyrealty.com
or by phone (301) 340-8700 ext. 101. I look forward to
hearing from you!
Rory
S. Coakley
Coakley Realty, Inc.
20 Courthouse Square - Suite 106
Rockville, MD 20850
www.coakleyrealty.com
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