Extension of the Homebuyer Tax Credit under the Worker, Homeownership, and Business Assistance Act of 2009

New Deadlines

While the maximum tax credit amount remains at $8,000 for a first-time homebuyer, the Worker, Homeownership, and Business Assistance Act of 2009 (“WHBAA”)extends the deadline for qualifying home purchases from November 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase. The first-time homebuyer is defined as a taxpayer who has not owned a primary residence during the three years up to the date of purchase.

WHBAA also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” In order to qualify, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.

Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011.

New Income Limits

WHBAA further raises the income limits for buyers who purchase homes after November 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

Remember, for homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Taxpayers who enjoy higher incomes do not qualify for this tax credit.

Top New Restrictions

WHBAA imposes several new restrictions for homes purchased after November 6, 2009. Among the most important restrictions are inability by the dependants and minors (less than 18 years of age on the date of purchase) to claims the tax credit. Also, home purchased for the price exceeding $800,000 do not qualify for the tax credit.

How to Claim this Tax Credit

The qualifying homebuyers have the option of claiming the tax credit on either their 2009 or 2010 tax returns. In order to claim the tax credit, the eligible taxpayers must fill-out the new Form 5405 together with the following additional documentation:

a). Generally: a copy of the settlement statement showing all parties’ names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement;

b). If the taxpayer purchased a mobile home and unable to get a settlement statement, then he should include a copy of the executed retail sales contract, showing all parties’ names and signatures, property address, purchase price and date of purchase;

c). If the taxpayer purchased a newly constructed home and a settlement statement is not available, then he should include a copy of the certificate of occupancy, showing the owner’s name, property address and date of the certificate.

If the taxpayer is claiming a “long-time resident” tax credit, it is advisable (to avoid refund delays) to attach the following documents covering the five-consecutive-year period:

I) Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements, or
ii) Property tax records, or
iii) Homeowner’s insurance records.

Notice the word “or” – this means that either of the aforementioned three categories of records may suffice.

Remember, the taxpayers claiming the homebuyer credit must file a paper tax return because of the added documentation requirements.