Options to Maximize New First-Time Homebuyer Tax Credit

Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchase a home in 2009 before December 1 receive a tax credit of 10% of the purchase price to $8,000, or $4,000 for married individuals filing separately.  People can claim the credit either on their 2008 tax returns due on April 15 or on their 2009 tax returns next year.

The credit is phased out for higher-income taxpayers.  Therefore, it is very important to consider which year the credit is claimed.  Even though the credit is for a home purchased in 2009, the AGI phase-out is based on the income for the year in which the credit is claimed, either 2008 or 2009.  While claiming the credit in 2008 will get the money into the homebuyers’ hands faster, if the phase-out is affecting the amount of the credit, it is important to consider which year will produce the largest credit.

The phase-out range begins for individual taxpayers with a modified AGI of $75,000 and is fully phased-out out at $95,000.  For married taxpayers filing jointly, the phase-out range is $150,000 - $170,000.

A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no present ownership interest in a principal residence in the U.S. during the three-year period before the purchase of the home to which the credit applies.

Once the taxpayer has determined which year he or she wants to claim the credit, the following are the various options available:

• File an extension - Taxpayers who haven’t yet filed their 2008 returns and are purchasing a home soon can request a six-month extension to October 15.  This would be faster than waiting until next year to claim it on the 2009 tax return.  Even with an extension, taxpayers could still file electronically, receiving their refund in as little as 10 days with direct deposit.

• File now, amend later - Taxpayers who are due a sizable refund for their 2008 tax return and are considering buying a house in the next few months can file their return now and claim the credit later.  Taxpayers would file their 2008 tax forms as usual, and then follow up with an amended return later this year to claim the homebuyer credit.

• Amend the 2008 tax return - Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.

• Claim the credit in 2009 rather than 2008 - For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when filing the 2009 tax return rather than claiming it now on the 2008 tax return.  This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return, possibly including people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

If you have or are planning to purchase a home in 2009 and would like some additional information on how this credit may apply to you, please call this office for additional information.

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