The home buyer tax credit is a chance to financially augment retirement living with a new home and lower taxes. The first and most clear way to benefit from the new home buyer tax credit is the $6,500.00 check that could be paid to home buyers by the Department of the Treasury if the property is indentured by April 30, 2010.
In the case of first time home buyers the tax credit is even higher at $8,000.00. Each qualifying home is subject to one tax credit regardless of the number of buyers, however the buyers can agree upon the distribution of the credit. Home buyers may also be able to use the tax credit for government mortgage program expenses such as Federal Housing Administration (FHA) Loans.
According to the U.S. Department of Housing and Urban Development, the tax credit eligibility can be ‘monetized’ for use as certain home buying expenses and down payment amounts above 3.5% of property value For working retirees, the home buyer credit can be cited as valid reason to adjust employer retention of income, and the credit can be used in 2010 even if the property is bought in 2009 and vice versa.
Home purchases that include pass through business expenses for S-Corporations, Partnerships or Sole Proprietorships may account for lower taxable income thereby multiplying the benefit of the home purchase.
For example, a proportional cost of moving, loan interest, depreciation and repairing a new primary residence in which a small business operates may be able to pass through these expenses for a potentially lower taxable income. Some states have home buyer tax credits of their own, however in cases such as California, the tax credit was suspended at the end of August 2009 due to budgeting constraints. House flippers should be aware the credit can be recaptured if the property is sold within 36 months of purchase.
Homes acquired via 1031 exchanges may postpone capital gains taxes while still receiving the tax credit, however this is subject to both 1031 exchange and tax credit regulations. For home buyers going into bankruptcy the real estate purchase may protect assets during bankruptcy and still qualify for tax credit thereafter.
Qualifying for the federal home buyer tax credit is based on income, purchase price percentage, property usage, residential history criteria and contractual deadline. These criteria are determined by the U.S. Internal Revenue Service on an individual tax filing basis, and in accordance with regulatory legislation.
The home buyer tax credit can be claimed using an IRS Form 5405, and primary residences valued in excess of $800K do not qualify for new or repeat home buyer’s tax credit. Home buyers who have recently owned a home for 5 years or longer can qualify for the repeat home buyer credit, and new buyers who have not owned a home for 3 years may qualify for the first time buyer tax credit.
The income limitations establishing full eligibility for both the first-time and repeat home buyer credit requires a Modified Adjusted Gross Income of no more than $125,000 for single tax filers and $225,000 for married couples filing jointly.
The Modified Adjusted Gross Income or MAGI can be higher than Adjusted Gross Income in some instances where specific loan interest and income deductions are considered as though non-deductible. In any case, the IRS or a qualified tax accountant can provide additional details and answers regarding the tax credit. The IRS phases out the tax credit for incomes higher than the aforementioned with a total disqualification at $145K and $245K.