President Obama signed into law last week an extension of the first time home buyers tax credit until April 30, 2010. The credit was set to expire on December 1, 2009. Contracts signed by April 30 must close by June 30 to allow home buyers to qualify for the $8,000 refundable credit. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.
In addition to extending the first time buyer’s tax credit for six months, the measure allows many more people to qualify by including taxpayers who already own homes and are moving to a different residence, and by raising the income limits.
Couples earning up to $225,000 a year and individuals earning up to $125,000 will be now be eligible for the credit. In the original law, the income limits were $75,000 for individuals and $150,000 for couples.
Home buyers who have owned their prior residence for at least five of the past eight years are eligible under the new law for a $6,500 credit on the purchase of a home. Homes worth more than $800,000 are not eligible.
According to an Internal Revenue Service press release that reflects the new legislation, the credit:
- Applies only to homes used as a taxpayer's principal residence. Vacation homes do not qualify for the credit
- Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.
- Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
For homes purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer's main residence within a three-year period following the purchase.
The government will demand that home buyers pay the credit back if they sell in less than three years, said Clint Stretch, director of tax policy with Deloitte Tax, according to the Los Angeles Times. Stretch also said that home owners considering the tax break should remember that “taxable profits from the sale of their residence will be added to their other earnings to determine whether their adjusted gross income exceeds the allowable thresholds.”
The new law contains provisions designed to prevent some of the widespread fraud that has been reported in the program so far. Republican U.S. Rep. Charles Boustany, of Louisiana and Democratic U.S. Representative John Lewis of Georgia, of the House Ways and Means subcommittee, amended to program to require a mandatory minimum age of 18 for filers. Filers must also attach a HUD-1 settlement statement to show their intent to purchase homes. More than 19,000 people filed 2008 tax returns claiming the tax credit for homes they had not yet purchased, U.S. Treasury Inspector General for Tax Administration (TIGTA), J. Russell George, told a panel of the U.S. House of Representatives late last month.
The IRS will install computer filters so those who filed for a home mortgage interest deduction could not also claim the first-time tax credit. George reported that another 74,000 taxpayers filed for the first-time buyer’s credit even though there were indications they had already owned homes.
George criticized the IRS before the subcommittee. "The IRS is having a very mixed bag in terms of its implementation of this important tool to help the economy", according to a report in USAToday.
The IRS has opened 107,000 civil cases related to the credit and identified 167 criminal schemes, USAToday reported. They have also selected thousands of returns for those claiming the credit for deeper audits.