Single taxpayers Get an $8,000 cash refund for 1st time home purchase

by Joseph W. Walloch  

Thanks to the American Recovery and Reinvestment Tax Act of 2009, passed on February 17, first-time home buyers get an enticing incentive for a "main home" purchase; a first-time homebuyer credit of up to $8,000.

The irony of the provision is you do not have to be a first-time homebuyer to qualify. A "first-time" homebuyer is defined as someone who has not owned a present interest in a principal residence within three years of the purchase date.

The first-time homebuyer tax credit is up to $8,000 for your "main home" purchased from Jan. 1, 2009, through Nov. 30, 2009. A "main home" is defined as the one you live in most of the time and can include a single-family dwelling as well as a housetrailer, houseboat, condominium, cooperative apartment or other type of residence. Homes acquired by gift or inheritance or purchase from a related party will not qualify.

The credit is based on 10 percent of the purchase price of the home, so a home costing as little as $80,000 would qualify for the full $8,000 refund. But make sure your transaction is completed before Dec. 1, 2009, to qualify. Generally, a purchase takes place when title closes. If it’s new construction, the home is considered purchased on the date you first move in.

"For first-time homebuyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit,” says IRS commissioner Douglas Shulman. “This important change gives qualifying homebuyers cash they do not have to pay back."

There is no required repayment of the $8,000 for a home acquired in 2009 after you live in the home as your "main home" for at least 36 months. No repayment is required at death. There are special rules for divorces and involuntary conversions. If the home is sold within 36 months to an unrelated party, the repayment is limited to the gain on the sale.

The credit begins to phase out for single taxpayers with modified adjusted gross incomes in excess of $75,000 and the credit completely phases out at $95,000.

For taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10 percent of the purchase price, up to $7,500. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.

For more detailed information and instructions, visit www.irs.gov and click 2008 Form 5405 "First-Time Homebuyer Credit”.

Joseph W. Walloch is a CPA in Redlands and a professor of advanced taxation and advanced financial accounting at the University of California, Riverside. Contact him through his Web site, www.walloch.com