Extended and Modified November 6, 2009

Highlights:

• Extended to qualified purchases made under a written binding contract effective before May 1, 2010 and closed before July 1, 2010.
• Extended another year for members of the Armed Forces deployed outside the United States.
• Expanded to long-time residents of the same residence.
• Income limits increased.
• Home may not cost more than $800,000.
• The full text of the Extension and Modification of the First-Time Homebuyer Tax Credit is available.

Details and Frequently Ask Questions:

Who is a “First-Time Homebuyer”?

• You are considered a first-time homebuyer if you (or your spouse) have not owned a principal residence during the three year period ending on the date of purchase.

Who else is a “First-Time Homebuyer”?

• "EXCEPTION FOR LONG-TIME RESIDENTS OF SAME PRINCIPAL RESIDENCE.–In the case of an individual (and, if married, such individual’s spouse) who has owned and used the same residence as such individual’s principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time homebuyer for purposes of this section with respect to the purchase of such subsequent residence."
• The purchased house does NOT need to cost more than the old house. Is it time to downsize or move to a lower cost area?
• If you sold a home a couple years ago that you lived in for five consecutive years of the previous eight, you may qualify, regardless of whether you have been renting or bought another home in the interim. The key is “consecutive years” in one house. What you did in the interim does not affect eligibility.

What Portland property is eligible?

• All principal residences within the United States are eligible.
• Includes single-family attached and detached homes, manufactured homes, and houseboats.
• Second homes or investment properties are not eligible. The definition of principal residence is identical to the definition under the $250,000/$500,000 capital gain exclusion rules.
• Purchases closed after November 6, 2009 must be less than $800,000 to qualify. This is a “hard” limit: there is no phase out.

When must you purchase your Portland home?

• You must close the purchase after April 8, 2008 and before May 1, 2010.
• If you have entered into a written binding contract before May 1, 2010, you have until June 30, 2010 to close.
• If you are a member of the "uniformed services" (Armed Forces, Foreign Service, U.S. Public Health Service, NOAA) and deployed outside the United States for ninety days after December 31, 2008 and before May 1, 2010, the deadlines are extended one year.
• If you buy an existing home, remodel it extensively, then move in, credit eligibility is determined by the date of purchase.
• But if you build the home you are treated as having purchased it on the date you first occupy it.

How much is the credit?

• 2008 purchase: Lesser of 10% of the home’s purchase price or $7500.
• 2009/2010 purchase: Lesser of 10% of the home’s purchase price or $8000.
• "Long time resident:” Lesser of 10% of the home’s purchase price or $6,500.

When is the credit claimed?

• 2008 purchase: 2008 tax return.
• 2009/2010 purchase: prior or current year tax return. For instance, you can purchase in 2010 and take the credit on your 2009 taxes. You can amend your 2009 return to do this if you have already filed.

Is an unused credit refundable?

• Yes, any unused credit is refundable, even if you have little or no federal income tax liability to offset. Wouldn't that be a nice check to get?

Isn't the credit just an interest free loan? Won't I have to repay it?

• 2008 purchase: Repay in equal installments for fifteen years beginning with 2010 tax return.
• 2009/2010 purchase: No repayment.

What other situations would require me to repay the credit?

• 2008 purchase: Remaining balance of repayment amount becomes due if the home ceases to be your principal residence within the fifteen year period.
• 2009/2010 purchase: Entire credit amount must be repaid if home ceases to be your principal residence within the thirty-six month period beginning on the purchase date.
• Exceptions:
  • If you sell the home, convert it to business or rental property, or the home is destroyed or condemned and not replaced within two years, you'll have to repay part of the credit claimed.
  • Repayment will not exceed the profit on sale, if sold to an unrelated person.
  • The spouse receiving the home in a divorce settlement is responsible for any repayment.
  • Repayment is not required if you die. Now there’s a tax plan.
  • It does not appear that job-related moves, foreclosures, divorces, moves due to medical necessity or other life events (other than death) qualify as exception to the repayment provisions. Whether you would avoid repayment due to lack of a profit depends upon your situation.

Are there income limits to claiming the credit?

• Qualified purchases closing on or before November 6, 2009:
  
  • Full credit available for single and head-of-household taxpayers with modified adjusted gross income (MAGI) below $75,000 (Married Filing Joint (MFJ) is $150,000).
  • Maximum available credit phases out between $75,000 and $95,000 single and $150,000 and $170,000 MFJ.
  • No credit if MAGI exceeds $95,000/$170,000.
• Qualified purchases closing after November 6, 2009:
  • Full credit available for single and head-of-household taxpayers with modified adjusted gross income (MAGI) below $125,000 (Married Filing Joint (MFJ) is $225,000).
  • Maximum available credit phases out between $125,000 and $145,000 single and $225,000 and $245,000 MFJ.
  • No credit if MAGI exceeds $145,000/$245,000.

Can I take the credit if I financed my purchase through a state bond program?

• 2008 purchase: No credit allowed if the home financing comes from tax-exempt mortgage revenue bonds.
• 2009/2010 purchase: Restriction does not apply.

Can I use the credit as part of my down payment?

• Yes and no. In May 2009 the U.S. Department of Housing and Urban Development (HUD) announced that buyers financing through a state housing agency or other HUD-approved advance programs could apply the credit to their down payment. Buyers using FHA lenders could apply the credit to closing costs or make a larger down payment. But HUD prohibited lenders from charging borrowers for their cost of processing the credit. So few, if any, are. I haven’t found one.

Can I buy the home from my sister?

• Related party transactions are restricted. Purchases from your spouse, ancestors, or lineal descendents do not qualify. But purchases from your brother or sister do qualify.
• Acquisitions by gift or inheritance do not qualify.

How old does the buyer have to be?

• Buyer must be at least 18 years old on the date of purchase, or married to someone who is, for purchases after November 6, 2009.

How do I claim the credit?

• New IRS Form 5405 is used to claim the credit.
• A “properly executed copy of the settlement statement used to complete such purchase” must be attached to the tax return claiming the credit.

Anything else?

• If two or more unmarried individuals buy the home together, they can allocate the credit amongst the qualified first-time buyers using any reasonable method. For instance, non-qualified parents can help qualified children buy the home, and the qualified children would claim the credit. See IRS Notice 2009-12 for more details.
• Consult a qualified tax professional with any questions.