Last Day To Purchase a Home and Qualify for The First Time Homebuyers Credit is November 30, 2009
First-Time Homebuyer Credit Provides Tax Benefits to 1.4 Million Families to Date, More Claims Expected.
WASHINGTON — With the deadline quickly approaching, the Internal Revenue Service today reminded potential homebuyers they must complete their first-time home purchases before Dec. 1 to qualify for the special first-time homebuyer credit. The American Recovery and Reinvestment Act extended the tax credit, which has provided a tax benefit to more than 1.4 million taxpayers so far
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The credit of up to $8,000 is generally available to homebuyers with qualifying income levels who have never owned a home or have not owned one in the past three years. The IRS has a new YouTube video and other resources that explain the credit in detail.
The IRS encouraged all eligible homebuyers to take advantage of the first-time homebuyer credit but at the same time cautioned taxpayers to avoid schemes that help ineligible people file false claims for the credit. Currently, the agency is investigating a number of cases of potential fraud and is using computer screening tools to identify questionable claims for the credit.
Because the credit is only in effect for a limited time, those considering buying a home must act soon to qualify for the credit. Under the Recovery Act, an eligible home purchase must be completed before Dec. 1, 2009. This means that the last day to close on a home is Nov. 30.
The credit cannot be claimed until after the purchase is completed. For purchases made this year before Dec. 1, taxpayers have the option of claiming the credit on their 2008 returns or waiting until next year and claiming it on their 2009 returns.
For those considering a home purchase this fall, here are some other details about the first-time homebuyer credit:
The credit is 10 percent of the purchase price of the home, with a maximum available credit of $8,000 for either a single taxpayer or a married couple filing jointly. The limit is $4,000 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $80,000 or more.
The credit reduces the taxpayer’s tax bill or increases his or her refund, dollar for dollar. Unlike most tax credits, the first-time homebuyer credit is fully refundable. This means that the credit will be paid to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
Only the purchase of a main home located in the United States qualifies. Vacation homes and rental properties are not eligible.
A home constructed by the taxpayer only qualifies for the credit if the taxpayer occupies it before Dec. 1, 2009.
The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on the taxpayer’s modified adjusted gross income (MAGI). MAGI is adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the range is $75,000 to $95,000. This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
The credit must be repaid if, within three years of purchase, the home ceases to be the taxpayer’s main home. For example, a taxpayer who claims the credit based on a qualifying purchase on Sept. 1, 2009, must repay the full credit if he or she sells the home or converts it to business or rental use at any time before Sept. 1, 2012.
Taxpayers cannot take the credit even if they buy a main home before Dec. 1 if:
The taxpayer’s income is too large. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
The taxpayer buys a home from a close relative. This includes a home purchased from the taxpayer’s spouse, parent, grandparent, child or grandchild.
The taxpayer owned another main home at any time during the three years prior to the date of purchase. For a married couple filing a joint return, this requirement applies to both spouses.
For example, if the taxpayer bought a home on Sept. 1, 2009, the taxpayer cannot take the credit for that home if he or she owned, or had an ownership interest in, another main home at any time from Sept. 2, 2006, through Sept. 1, 2009.
The taxpayer is a nonresident alien.
For details on claiming the credit, see Form 5405, First-Time Homebuyer Credit.
2 Year Rule on Early Distributions From Simple IRA Plans
[Stacie says: The following information is from Retirement Rules For Employers published by the IRS. Pay particular attention to the 25% additional tax on early distributions – the two year period described below is key to understanding the tax consequences of an early distribution.]
Generally, an early distribution from a SIMPLE IRA is treated the same as one from a traditional IRA; the 10% additional tax on early distributions applies. However, if a distribution is made from the SIMPLE IRA within two years of when contributions were first deposited to the participant’s SIMPLE IRA, the additional tax on early distributions, if applicable, is increased from 10% to 25%. Any rollovers or transfers from a SIMPLE IRA within this 2-year period, unless to another SIMPLE IRA, are also subject to the 25% additional tax on early distributions.
Certain distributions are exempt from any additional tax on early distributions and include the following distributions made:
after the participant is 59 ½ years old;
for unreimbursed medical expenses that are more than 7.5% of adjusted gross income;
in an amount not more than the cost of medical insurance;
after the participant is disabled;
in the form of an annuity;
to pay qualified higher education expenses; and
to buy, build or rebuild a first home.
If the employer terminates a SIMPLE IRA plan before the 2-year period, the 25% additional tax on early distributions still applies. Participants who want to avoid this additional tax have the option of:
leaving the money in their SIMPLE IRA until the end of the 2-year period; or
leaving the money in their SIMPLE IRA until they meet an exception to the additional tax.
Participants can roll over the balance in their SIMPLE IRA to another SIMPLE IRA, but the 25% additional tax on early distributions will still apply for distributions from the new SIMPLE IRA within the original 2-year period. After the 2-year period has been met, SIMPLE IRA assets can be rolled over or transferred to other types of retirement plans, including 401(k) plans, 403(b) plans, 457(b) plans, and traditional and Roth IRAs without being subject to the 25% additional tax on early distributions.
Additional Information on SIMPLE IRA Plans:
Publication 4334, SIMPLE IRA Plans for Small Businesses
Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)
Publication 590, Individual Retirement Arrangements (IRAs)
Retirement Plans FAQs regarding SIMPLE IRA Plans
SIMPLE IRA Plan
