Search Penny Hill Press

Tuesday, July 20, 2010

The First-Time Homebuyer Tax Credit

Carol A. Pettit
Legislative Attorney

Homebuyers who were unable to close on their properties by the June 30, 2010, deadline imposed by the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92) may still be able to receive the first-time homebuyer tax credit if they close before October 1, 2010, so long as they had a binding contract for the property before May 1, 2010, and that contract required closing before July 1, 2010, and they meet all other requirements for the credit. P.L. 111-198, enacted July 2, 2010, and effective for closings after June 30, 2010, provides the additional time for closing. It makes no other changes to the credit—§ 36 of the Internal Revenue Code.

The first-time homebuyer credit was established in 2008 by P.L. 110-289. It was modified and extended by P.L. 111-5 in February 2009. It was further extended by P.L. 111-92 in November 2009, and expanded to include some homebuyers who did not qualify under the credit's original definition of a first-time homebuyer. These homebuyers—called "long-time residents"—must have owned and lived in their principal residence for at least five consecutive years during the eight-year period that ends on the date they purchase a subsequent property to use as their principal residence.

The credit is based on 10% of the purchase price of property that is used as the purchaser's principal residence. For purchases before 2009, it is limited to $7,500, which generally must be repaid over a 15-year period that begins with the second tax year following the tax year for the year of purchase. For purchases after 2008, the credit is generally limited to $8,000, but that limit is reduced to $6,500 for "long-time residents." Repayment is not required unless taxpayers cease to use the property as their principal residences within three years of the date of purchase.

Regardless of the year of purchase, the credit may be reduced or eliminated for those with incomes over a threshold amount. For purchases before November 7, 2009, the threshold amount is $150,000 for joint filers and $75,000 for all others. For purchases after November 6, 2009, the threshold is increased to $225,000 for joint filers and $125,000 for others.

There are some limitations on qualifying for the credit. No credit is allowed for property (1) located outside the United States; (2) inherited; (3) purchased from a close relative; or (4) purchased by a non-resident alien. Property purchased in 2008 will not qualify if financed with the proceeds of tax-exempt mortgage revenue bonds, or if the purchaser qualified for the first-time homebuyer credit in the District of Columbia in 2008 or earlier. Certain additional restrictions apply to purchases made after November 6, 2009: (1) residences costing more than $800,000 will not qualify; (2) purchasers must be at least 18 years old; and (3) purchasers cannot be eligible to be claimed as a dependent on another taxpayer's tax return.

In mid-2009, the FHA authorized state housing finance agencies and others to arrange advances of the credit to taxpayers, effectively allowing taxpayers to borrow against the credit if funds were used for down payments, prepaid expenses, or closing costs. The purchase must have been completed before the credit is claimed on a tax return, but it can be claimed on an amended return for the tax year prior to the year of purchase. Generally credits claimed on tax returns for 2009 and later must be documented with a copy of the settlement statement attached to the return.

There are special provisions regarding both the eligible purchase dates and the repayment provisions for members of the military, foreign service, and intelligence communities

Date of Report: July 6, 2010
Number of Pages: 20
Order Number: RL34664
Price: $29.95

Document available via e-mail as a pdf file or in paper form.
To order, e-mail Penny Hill Press or call us at 301-253-0881. Provide a Visa, MasterCard, American Express, or Discover card number, expiration date, and name on the card. Indicate whether you want e-mail or postal delivery. Phone orders are preferred and receive priority processing.