$8,000 HOMEBUYER TAX CREDIT DETAILS

The tax credit available to first-time home buyers was increased from $7,500 to $8,000 for homes purcha= sed between January 1, 2009, and December 1, 2009. Also, the credit no longer needs to= be paid back as long as the buyers live in the home without selling it for at least 3 years.

The previous version of the cred= it expired on July 1, 2009, and required home buyers to pay the funds back ove= r a 15 year time frame.

The income limitations remain the same ($75,000 for single tax payers claiming the full credit and $150,000 f= or married tax payers).

The credit remains refundable. This means that first-time home bu= yers who owe less than $8,000 in taxes for the year are still eligible for the f= ull $8,000 credit when they file their tax returns, and the IRS will write them= a check for the difference between $8,000 and their actual tax bill. In fact, the credit can be claimed= on your 2008 tax returns that you file by April 15 of this year, even if you b= uy the home in 2009.

For more details you can read the frequently asked questions below or give us a call at 205-612-9633 so we can discuss your specific circumstances.

1. Who is eligible to claim the tax credit?
First-time home buyers purchasing any kind of home—new or resale—are eligi= ble for the tax credit. To qualify for the tax credit, a home purchase must occ= ur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the t= itle to the property transfers to the home owner.

2. What is the defini= tion of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarri= ed joint purchasers may allocate the credit amount to any buyer who qualifies = as a first-time buyer, such as may occur if a parent jointly purchases a home wi= th a son or daughter. Ownership of a vacation home or rental property not used a= s a principal residence does not disqualify a buyer as a first-time home buyer.=

3. How is the amount = of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.=

4. Are there any inco= me limits for claiming the tax credit?
The tax credit amount is reduced for buyers with a modified adjusted gross inco= me (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero f= or taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and= is reduced proportionally for taxpayers with MAGIs between these amounts.=

5. What is "modi= fied adjusted gross income"?
Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or person= al exemptions are subtracted. On Forms 1040 and 1040A, AG= I is the last number on page 1 and first number on page 2 of the form. For Fo= rm 1040-EZ, AGI appears on line 4 (as of 2007). No= te that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to <= span class=3DSpellE>AGI certain amounts such as foreign income, foreign-h= ousing deductions, student-loan deductions, IRA-contribution deductions and deduct= ions for higher-education costs.

6. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax c= redit?
Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

7. Can you give me an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from = 1.0, the result is 0.5. To determine the amount of the partial first-time home b= uyer tax credit that is available to this couple, multiply $8,000 by 0.5. The re= sult is $4,000.

Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s in= come exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When y= ou subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstan= ces. You should always consult your tax advisor for information relating to your specific circumstances.

8. How is this home b= uyer tax credit different from the tax credit that Congress enacted in July of 2= 008?
The most significant difference is that this tax credit does not have to be rep= aid. Because it had to be repaid, the previous "credit" was essentiall= y an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three y= ears or face recapture of the tax credit amount. Certain exceptions apply.

9. How do I claim the= tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 = to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, = and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer te= sts.

10. What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses = and condominiums, manufactured homes (also known as mobile homes) and houseboat= s. The definition of principal residence is identical to the one used to deter= mine whether you may qualify for the $250,000 / $500,000 capital gain tax exclus= ion for principal residences.

11. I read that the tax credit is "refundable." What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability = to offset. Typically this involves the government sending the taxpayer a check= for a portion or even all of the amount of the refun= dable tax credit.

For example, if a qualified home buyer expected, notwithstan= ding the tax credit, federal income tax liability of $5,000 and had tax withhold= ing of $4,000 for the year, then without the tax credit the taxpayer would owe = the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a che= ck for $7,000 ($8,000 minus the $1,000 owed).

12. I purchased a home= in early 2009 and have already filed to receive the $7,500 tax credit on my 20= 08 tax returns. How can I claim the new $8,000 tax credit instead?
Home buyers in this situation may file an amended 2008 tax return with a 1040X f= orm. You should consult with a tax advisor to ensure you file this return proper= ly.

13. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a= lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In th= is situation, the date of first occupancy must be on or after January 1, 2009 = and before December 1, 2009.

In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement dat= e.

14. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (= MRB) program?
Yes. The tax credit can be combined with the MRB home buyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

15. I live in the Dist= rict of Columbia. Can I claim both the Washington, D.C. first-time home buyer cr= edit and this new credit?
No. You can claim only one.

16. I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not = owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 5= 19.

17. Is a tax credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. Th= at means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that= is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

18. I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your fi= rst home between April 9, 2008 and January 1, 2009, you may qualify for a diffe= rent tax credit.

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19. Is there any way f= or a home buyer to access the money allocable to the credit sooner than waiting = to file their 2009 tax return?
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding = (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment.

Buyers should adjust their withholding amount on their W-4 v= ia their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduc= ed and the tax credit qualified purchase does not occur, then the individual w= ould be liable for repayment to the IRS of income tax and possible interest char= ges and penalties.

Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, = such as the Missouri Housing Development Commission, have introduced programs th= at provide short-term credit acceleration loans that may be used to fund a downpayment. Prospective home buyers should inquire w= ith their state housing finance agency to determine the availability of such a program in their community.

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20. If I’m quali= fied for the tax credit and buy a home in 2009, can I apply the tax credit again= st my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified h= ome purchases in 2009 as if the purchase occurred on December 31, 2008. This me= ans that the 2008 income limit (MAGI) applies and the election accelerates when= the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim it on their 2008 t= ax return, but who have already submitted their 2008 return to the IRS, may fi= le an amended 2008 return claiming the tax credit. You should consult with a t= ax professional to determine how to arrange this.

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21. For a home purchas= e in 2009, can I choose whether to treat the purchase as occurring in 2008 or 20= 09, depending on in which year my credit amount is the largest?
Yes. If the applicable income phaseout would reduce = your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.