Home » FILING YOUR TAX RETURN » What’s Happening With The Homebuyers Credit – Well I’m Going to Tell Ya

What’s Happening With The Homebuyers Credit – Well I’m Going to Tell Ya

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By Stacie Clifford Kitts

The House has voted to extend the Homebuyers credit as part of H.R.3548 Worker, Homeownership, and Business Assistance Act of 2009

What’s new for the credit? Well if President Obama signs the bill here is a quick outline of what we get: (The entire section of the bill that relates to the Homebuyers credit is listed below my outline)

  • The applicable period is extended until April 30, 2010. (see binding contract rules below)
  • If you are on qualified official extended duty outside the US the applicable period is extended until April 30, 2011. (Members of the military serving outside the US for at least 90 days)(see also binding contract rules below)
  • There is a new election to treat a purchase after December 31, 2008 as if it happened at the end of the preceding year. (see details below)
  • There is an enhanced definition of a first time homebuyer (see special rule for Long-Time residents below – if you owned your former home for at least 5 consecutive of the 8 prior years you are eligible for a credit up to $6,500)
  • There has been a modification of dollar and income limits. No credit is allowed if the house cost is more than $800,000. The income phase out is $125,000 for single tax payers and $225,000 for married taxpayers. (See below for more dollar limits)
  • A taxpayer must be at least 18 years old to claim the credit
  • A settlement statement must be attached to the tax return when claiming the credit
  • Restriction on married individuals acquiring a residence from a family member or spouse from claiming the credit
  • If a credit is incorrectly claimed on a tax return it will be treated as a mathematical or clerical error. I guess this means they aren’t going to put you in jail if you screw it up.

    H.R.3548 click here to read the entire bill

SEC. 11. EXTENSION AND MODIFICATION OF FIRST-TIME HOMEBUYER TAX CREDIT.
(a) Extension of Application Period-
(1) IN GENERAL- Subsection (h) of section 36 of the Internal Revenue Code of 1986 is amended–
(A) by striking `December 1, 2009′ and inserting `May 1, 2010′,
(B) by striking `Section- This section’ and inserting `Section-
`(1) IN GENERAL- This section’, and
(C) by adding at the end the following new paragraph:
`(2) EXCEPTION IN CASE OF BINDING CONTRACT- In the case of any taxpayer who enters into a written binding contract before May 1, 2010, to close on the purchase of a principal residence before July 1, 2010, paragraph (1) shall be applied by substituting `July 1, 2010′ for `May 1, 2010′.’.
(2) WAIVER OF RECAPTURE-
(A) IN GENERAL- Subparagraph (D) of section 36(f)(4) of such Code is amended by striking `, and before December 1, 2009′.
(B) CONFORMING AMENDMENT- The heading of such subparagraph (D) is amended by inserting `AND 2010′ after `2009′.
(3) ELECTION TO TREAT PURCHASE IN PRIOR YEAR- Subsection (g) of section 36 of such Code is amended to read as follows:
`(g) Election To Treat Purchase in Prior Year- In the case of a purchase of a principal residence after December 31, 2008, a taxpayer may elect to treat such purchase as made on December 31 of the calendar year preceding such purchase for purposes of this section (other than subsections (c), (f)(4)(D), and (h)).’.
(b) Special Rule for Long-time Residents of Same Principal Residence- Subsection (c) of section 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
`(6) EXCEPTION FOR LONG-TIME RESIDENTS OF SAME PRINCIPAL RESIDENCE- In the case of an individual (and, if married, such individual’s spouse) who has owned and used the same residence as such individual’s principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time homebuyer for purposes of this section with respect to the purchase of such subsequent residence.’.
(c) Modification of Dollar and Income Limitations-
(1) DOLLAR LIMITATION- Subsection (b)(1) of section 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:
`(D) SPECIAL RULE FOR LONG-TIME RESIDENTS OF SAME PRINCIPAL RESIDENCE- In the case of a taxpayer to whom a credit under subsection (a) is allowed by reason of subsection (c)(6), subparagraphs (A), (B), and (C) shall be applied by substituting `$6,500′ for `$8,000′ and `$3,250′ for `$4,000′.’.
(2) INCOME LIMITATION- Subsection (b)(2)(A)(i)(II) of section 36 of such Code is amended by striking `$75,000 ($150,000′ and inserting `$125,000 ($225,000′.
(d) Limitation on Purchase Price of Residence- Subsection (b) of section 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
`(3) LIMITATION BASED ON PURCHASE PRICE- No credit shall be allowed under subsection (a) for the purchase of any residence if the purchase price of such residence exceeds $800,000.’.
(e) Waiver of Recapture of First-time Homebuyer Credit for Individuals on Qualified Official Extended Duty- Paragraph (4) of section 36(f) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:
`(E) SPECIAL RULE FOR MEMBERS OF THE ARMED FORCES, ETC-
`(i) IN GENERAL- In the case of the disposition of a principal residence by an individual (or a cessation referred to in paragraph (2)) after December 31, 2008, in connection with Government orders received by such individual, or such individual’s spouse, for qualified official extended duty service–
`(I) paragraph (2) and subsection (d)(2) shall not apply to such disposition (or cessation), and
`(II) if such residence was acquired before January 1, 2009, paragraph (1) shall not apply to the taxable year in which such disposition (or cessation) occurs or any subsequent taxable year.
`(ii) QUALIFIED OFFICIAL EXTENDED DUTY SERVICE- For purposes of this section, the term `qualified official extended duty service’ means service on qualified official extended duty as–
`(I) a member of the uniformed services,
`(II) a member of the Foreign Service of the United States, or
`(III) an employee of the intelligence community.
`(iii) DEFINITIONS- Any term used in this subparagraph which is also used in paragraph (9) of section 121(d) shall have the same meaning as when used in such paragraph.’.
(f) Extension of First-time Homebuyer Credit for Individuals on Qualified Official Extended Duty Outside the United States-
(1) IN GENERAL- Subsection (h) of section 36 of the Internal Revenue Code of 1986, as amended by subsection (a), is amended by adding at the end the following:
`(3) SPECIAL RULE FOR INDIVIDUALS ON QUALIFIED OFFICIAL EXTENDED DUTY OUTSIDE THE UNITED STATES- In the case of any individual who serves on qualified official extended duty service (as defined in section 121(d)(9)(C)(i)) outside the United States for at least 90 days during the period beginning after December 31, 2008, and ending before May 1, 2010, and, if married, such individual’s spouse–
`(A) paragraphs (1) and (2) shall each be applied by substituting `May 1, 2011′ for `May 1, 2010′, and
`(B) paragraph (2) shall be applied by substituting `July 1, 2011′ for `July 1, 2010′.’.
(g) Dependents Ineligible for Credit- Subsection (d) of section 36 of the Internal Revenue Code of 1986 is amended by striking `or’ at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting `, or’, and by adding at the end the following new paragraph:
`(3) a deduction under section 151 with respect to such taxpayer is allowable to another taxpayer for such taxable year.’.
(h) IRS Mathematical Error Authority- Paragraph (2) of section 6213(g) of the Internal Revenue Code of 1986 is amended–
(1) by striking `and’ at the end of subparagraph (M),
(2) by striking the period at the end of subparagraph (N) and inserting `, and’, and
(3) by inserting after subparagraph (N) the following new subparagraph:
`(O) an omission of any increase required under section 36(f) with respect to the recapture of a credit allowed under section 36.’.
(i) Coordination With First-time Homebuyer Credit for District of Columbia- Paragraph (4) of section 1400C(e) of the Internal Revenue Code of 1986 is amended by striking `and before December 1, 2009,’.
(j) Effective Dates-
(1) IN GENERAL- The amendments made by subsections (b), (c), (d), and (g) shall apply to residences purchased after the date of the enactment of this Act.
(2) EXTENSIONS- The amendments made by subsections (a), (f), and (i) shall apply to residences purchased after November 30, 2009.
(3) WAIVER OF RECAPTURE- The amendment made by subsection (e) shall apply to dispositions and cessations after December 31, 2008.
(4) MATHEMATICAL ERROR AUTHORITY- The amendments made by subsection (h) shall apply to returns for taxable years ending on or after April 9, 2008.
SEC. 12. PROVISIONS TO ENHANCE THE ADMINISTRATION OF THE FIRST-TIME HOMEBUYER TAX CREDIT.
(a) Age Limitation-
(1) IN GENERAL- Subsection (b) of section 36 of the Internal Revenue Code of 1986, as amended by this Act, is amended by adding at the end the following new paragraph:
`(4) AGE LIMITATION- No credit shall be allowed under subsection (a) with respect to the purchase of any residence unless the taxpayer has attained age 18 as of the date of such purchase. In the case of any taxpayer who is married (within the meaning of section 7703), the taxpayer shall be treated as meeting the age requirement of the preceding sentence if the taxpayer or the taxpayer’s spouse meets such age requirement.’.
(2) CONFORMING AMENDMENT- Subsection (g) of section 36 of such Code, as amended by this Act, is amended by inserting `(b)(4),’ before `(c)’.
(b) Documentation Requirement- Subsection (d) of section 36 of the Internal Revenue Code of 1986, as amended by this Act, is amended by striking `or’ at the end of paragraph (2), by striking the period at the end of paragraph (3) and inserting `, or’, and by adding at the end the following new paragraph:
`(4) the taxpayer fails to attach to the return of tax for such taxable year a properly executed copy of the settlement statement used to complete such purchase.’.
(c) Restriction on Married Individual Acquiring Residence From Family of Spouse- Clause (i) of section 36(c)(3)(A) of the Internal Revenue Code of 1986 is amended by inserting `(or, if married, such individual’s spouse)’ after `person acquiring such property’.
(d) Certain Errors With Respect to the First-time Homebuyer Tax Credit Treated as Mathematical or Clerical Errors- Paragraph (2) of section 6213(g) the Internal Revenue Code of 1986, as amended by this Act, is amended by striking `and’ at the end of subparagraph (N), by striking the period at the end of subparagraph (O) and inserting `, and’, and by inserting after subparagraph (O) the following new subparagraph:
`(P) an entry on a return claiming the credit under section 36 if–
`(i) the Secretary obtains information from the person issuing the TIN of the taxpayer that indicates that the taxpayer does not meet the age requirement of section 36(b)(4),
`(ii) information provided to the Secretary by the taxpayer on an income tax return for at least one of the 2 preceding taxable years is inconsistent with eligibility for such credit, or
`(iii) the taxpayer fails to attach to the return the form described in section 36(d)(4).’.
(e) Effective Date-
(1) IN GENERAL- Except as otherwise provided in this subsection, the amendments made by this section shall apply to purchases after the date of the enactment of this Act.
(2) DOCUMENTATION REQUIREMENT- The amendments made by subsection (b) shall apply to returns for taxable years ending after the date of the enactment of this Act.
(3) TREATMENT AS MATHEMATICAL AND CLERICAL ERRORS- The amendments made by subsection (d) shall apply to returns for taxable years ending on or after April 9, 2008.

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2 Comments

  1. Larry Summers says:

    Although I’m in Missouri, there appears to be a great deal of buying of foreclosures and selling at a profit in California. The question I’ve seen asked but not answered is, “Is that a capital gains investment or a business interprise requiring the payment of self-employment tax?”

    I am retired at age 65. I have long been interested in real estate and recently purchased a house as an investment/retirement activity at a foreclosure sale. To my surprise, I quickly found a buyer for it this month with a profit of about $15,000. (Our “normal” yearly income from pensions and social security is about $60,000.) I would like to continue buying, repairing and selling 2 or 3 properties a year as a profitable retirement “hobby”, but after learning that there is a risk that the IRS may consider my “flipping” a business activity that includes self-employment taxes, I am reluctant to continue.

    Are you aware of any guidance from the IRS to better define this issue. Under what circumstances does the IRS decide an investment becomes a business activity?

    Thanks for your input, Larry

  2. Larry
    This is a complicated area. If you are engaged in this type of activity, you should hire a qualified tax professional to assist you with your tax questions.

    As far as a general discussion, here are some things to consider.

    Generally, flipping houses falls under a business with ordinary income aspects that would subject you to self-employment taxes. The houses that are flipped are considered inventory, which would not get capital gains treatment. What you are looking at here is really a facts and circumstances test with regard to the activity.

    Whether you pay self-employment taxes is dependent on many factors such as the business entity that you will be operating from. Some entities might require that you get a W2 which will require payroll taxes be withheld. In addition, the business entity will be required to pay the appropriate employer portion of the payroll taxes. Other entities will require you to pay self-employment taxes on your income and still others may allow you to pass-through some of the income without any self-employment or payroll tax issues.

    You should be aware that profitable hobbies are subject to income tax where losses from a hobby do not get you a tax deduction.

    If you are looking for the rules on the tax treatment of a particular transaction, I encourage you to speak with your tax advisor before you enter into it.

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