First-Time Homebuyers Have Several Options to Maximize New Tax Credit

To help stimulate home sales, both the federal and state governments are offering tax credits for Californians purchasing their piece of the American dream. Federal law offers up to $8,000 for first-time homebuyers and $6,500 for long-time residents. California law offers up to $10,000 for first-time homebuyers or buyers of properties that have never been occupied. Here’s a handy summary of the two tax credit laws:

For a printer-friendly version of the Homebuyer Tax Credit Chart 2010 click here (PDF file--Adobe Acrobat Reader Required**)

** Acrobat Reader is free downloadable software that will enable members to read any PDF files.

HOMEBUYER TAX CREDIT	FEDERAL	CALIFORNIA
Amount of Tax Credit	10% of purchase price not to exceed $8,000 for first-time homebuyers or $6,500 for long-term residents.	5% of purchase price, not to exceed $10,000 for first-time homebuyers or buyers of properties that have never been occupied. (See also Maximum Credit for All Taxpayers.)
Date of Purchase	Taxpayer must enter into a written binding contract by April 30, 2010, and close escrow by June 30, 2010.	Taxpayer must enter into an enforceable contract by December 31, 2010, and close escrow between May 1, 2010 and July 31, 2011, inclusive.
Principal Residence	Yes. Property purchased must be the taxpayer’s principal residence which is generally the home the taxpayer lives in most of the time (26 U.S.C. § 121).	Yes. Property purchased must be a qualified principal residence and eligible for the homeowner’s exemption from property taxes (Cal. Tax & Rev. Code § 218).
Type of Property	House, condominium, townhome, manufactured home, apartment cooperative, houseboat, housetrailer, or other type of property located in the U.S.	Single-family residence, whether detached or attached, condominium, co-op, manufactured home, mobilehome, or house boat. A home constructed by the taxpayer is not eligible because the home has not been "purchased".
Eligibility	1. First-Time Homebuyer: Up to $8,000 if buyer (and buyer’s spouse if any) has not owned a principal residence for the three-year period before date of purchase; OR 2. Long-Time Resident: Up to $6,500 if buyer (and buyer’s spouse if any) has owned and used existing home as a principal residence for 5 of the last 8 years.	1. First-Time Homebuyer: Up to $10,000 if the buyer (and buyer’s spouse/RDP if any, according to FTB) has not owned a principal residence for the three-year period before date of purchase; OR 2. Never-Occupied Property: Up to $10,000 for a principal residence if the property has never been previously occupied as certified by the seller.
Income Restriction	Yes. Tax credit begins to phase out for modified adjusted gross income (MAGI) over $125,000 (or $225,000 for joint filers). No tax credit at all for MAGI over $145,000 (or $245,000 for joint filers).	No
Maximum Purchase Price	$800,000.	N/A
Refundable	Yes. Any amount of the tax credit not used to reduce the tax owed may be added to the taxpayer’s tax refund check.	No
Repayment	No repayment required if the buyer owns and occupies the property for at least 36 months after purchase.	No repayment required if the buyer owns and occupies the property for at least two years immediately following the purchase.
Multiple Buyers (not married to each other)	Tax credit may be allocated between eligible taxpayers in any reasonable manner. See IRS Notice 2009-12 at www.irs.gov/pub/irs-drop/n-09-12.pdf.	Tax credit must be allocated between eligible taxpayers based on their percentage of ownership.
Maximum Credit for All Taxpayers	N/A	$100 million for first-time homebuyers and $100 million for never-occupied properties, both on a first-come-first-served basis.
Reservations of Credit	N/A	Yes. Buyer may reserve credit before close of escrow for a property that has never been occupied by submitting a certification signed by buyer and seller stating they have entered into an enforceable contract between May 1, 2010 and December 31, 2010, inclusive.
When to Claim	Full tax credit may be claimed on 2009 or 2010 tax returns.	1/3 of total tax credit may be claimed each year for 3 successive years (e.g. $3,333 for 2010, $3,333 for 2011, and $3,333 for 2012).
Tax Agency	Internal Revenue Service (IRS).	Franchise Tax Board (FTB).
How to File	First-Time Homebuyer Credit and Repayment of the Credit (IRS Form 5405) to be filed with tax returns	Submit application to the FTB to obtain Certificate of Allocation. The FTB may prescribe additional rules and procedures to carry out this law.
Other Restrictions	Cannot be an acquisition from related persons as defined; cannot be an acquisition by gift or inheritance; and buyer cannot be a non resident alien.	Cannot be an acquisition from related persons as defined; buyer or spouse must be 18 years old; buyer cannot be another taxpayer’s dependent; credit is allowed for only one qualified principal residence; credit is disallowed if taxpayer received 2009 new home tax credit; and credit allowed cannot be a business credit under Cal. Tax & Rev. Code § 17039.2.
Legal Authority	26 U.S.C. section 36.	Cal. Rev. & Tax Code section 17059.1 (as added by Assembly Bill 183).
Date of Enactment	November 6, 2009 (as revised).	March 25, 2010.
More Information	IRS Web site at http://www.irs.gov/newsroom/article/0,,id= 204671,00.html.	FTB Web site at http://www.ftb.ca.gov/ individuals/ New_Home_Credit.shtml.

Copyright© 2010, CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R. Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved.

The information contained herein is believed accurate as of April 12, 2010. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney. Revised by Stella Ling, Esq.

– You qualify for the Extended Homebuyer Tax Credit if:

You meet IRS income and homeownership rules.
You sign a binding contract by April 30, 2010.
You close on a home purchase by June 30, 2010.

There’s happy news for current homeowners: If you intend to sell your home and buy another in 2009 or 2010, you may be eligible for a federal tax credit of up to $6,500. The Extended Homebuyer Tax Credit legislation, passed in November 2009, also shares the wealth with first-time homebuyers—up to $8,000.

Are you eligible?

You’re considered a current homeowner under IRS rules if you’ve used the home being sold or vacated as a principal residence for five consecutive years within the last eight. You’re a first-time homebuyer if you or your spouse haven’t owned a home for the three years before your purchase.

In both cases, keep in mind that the credit amount you’re eligible for begins to decrease for joint filers if your modified adjusted gross income is $225,000 ($125,000 for individuals); it disappears at $245,000 ($145,000 for individuals).

The ultimate amount of your credit depends on the price of the home and your income.

To claim your benefit:

Close on a new principal residence between Nov. 7, 2009, and April 30, 2010. You can settle as late as June 30, 2010, as long as you have a binding contract by April 30.

Don’t spend more than $800,000 on your new home.

When you submit your tax return, attach a copy of the settlement statement you received at closing. Check with the IRS or your tax adviser to confirm what additional documentation may be needed.

Decide whether to:

Apply the credit to your 2009 tax return, filed on or before April 15, 2010,
File an amended 2009 return; or
Apply the credit on your 2010 return, filed on or before April 15, 2011.

First-timers who purchased a home between Jan. 1, 2009, and Nov. 6, 2009, may also be eligible for the $8,000. Keep in mind that the income limits in this case are tighter than for those who purchased after Nov. 6.

Apply the credit to your 2009 taxes

To claim the credit on your 2009 tax return:

Complete IRS Form 5405 to determine the amount of your available credit.
Apply the credit when you file your 2009 tax return or file an amended return.
Attach documentation of purchase to your return or amended return.

Which properties are eligible?

You can apply the credit to primary residences, including single-family homes, condos, townhomes, and co-ops.

Do I need to repay the tax credit?

No, not if you occupy the purchased home for three years or more. However, if the property is sold during this three-year period, the full amount of the credit will be recouped on the sale.

This article provides general information about tax laws and consequences, but is not intended to be relied upon by readers as tax or legal advice applicable to particular transactions or circumstances. Readers should consult a tax professional for such advice, and are reminded that tax laws may vary by jurisdiction.