2009-2010 Homebuyer Tax Credit Extension
Updated: 11/25/09

The Worker, Homeownership, and Business Assistance Act of 2009 has extended the tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence as well as a tax credit of up to $6,500 for qualified repeat home buyers.  Click the links below for info on the new program:

• $8,000 First-Time Homebuyer Tax Credit & $8000 Homebuyer Tax Credit FAQ's

• $6,500 Homebuyer Tax Credit & $6500 Homebuyer Tax Credit FAQ's

 

 

>>>>> ARCHIVED INFORMATION PERTAINING TO THE 2008-2009 HOMEBUYER TAX CREDITS <<<<<
2008 First-time Homebuyer Tax Credit
$7,500 tax credit / incentive for First-time Homebuyers
The 2008 tax credit has been replaced by the 2009 Federal Stimulus tax rebate of $8,000 (non-repayable).

2008 First-Time Home Buyer Tax Credit at a Glance

• The tax credit is available for first-time home buyers only.
• The maximum credit amount is $7,500.
  The credit is available for homes purchased on or after April 9, 2008 and before
  July 1, 2009.
• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
• The tax credit works like an interest-free loan and must be repaid over a 15-year period.

The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before July 1, 2009. The questions and answers below will provide basic information about the tax credit.  If you have more specific questions, I strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.  The 2008 tax credit has been replaced by the 2009 Federal Stimulus tax rebate of $8,000 which went into effect January 1, 2009.   If you purchased a home between  April 9 - December 31, 2008, the information below may apply to you - consult with your legal, accounting, financial, tax advisor to determine eligibility.

Frequently Asked Questions (F.A.Q)

1. Who is eligible to claim the $7,500 tax credit?

2. What is the definition of a first-time home buyer?

3. How do I claim the tax credit? Do I need to complete a form or application?

4. What types of homes will qualify for the tax credit?

5. Can you give me an example of how the partial tax credit is determined?

6. Does the credit amount differ based on tax filing status?

7. Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?

8. I heard that the tax credit is refundable. What does that mean?

9. What is the difference between a tax credit and a tax deduction?

10. Does the credit have to be paid back to the government? If so, what are the payback provisions?

11. Why must the money be repaid?

12. Because the money must be repaid, isn't the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?

13. If I'm qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?

14. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return?
 

1) Who is eligible to claim the $7,500 tax credit?
First time home buyers purchasing any kind of home "new or resale" are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after April 9, 2008 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.

2) What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

3) How do I claim the tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.

4) What types of homes will qualify for the tax credit?
Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.

5) Can you give me an example of how the partial tax credit is determined?
Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first time home buyer tax credit that is available to this couple, multiply $7,500 by 0.5. The result is $3,750.

Here's another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer's income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $7,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,625.

Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.

6) Does the credit amount differ based on tax filing status?
No. The credit is in general equal to $7,500 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as "married filing separately" (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.

7) Are there any circumstances for which buyers whose incomes are at or below the $75,000 limit for singles or the $150,000 limit for married taxpayers might not be able to claim the full $7,500 tax credit?
In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $7,500. For most first time home buyers, this means the credit will equal $7,500. For home buyers purchasing a home priced less than $75,000, the credit will equal 10% of the purchase price.

8) I heard that the tax credit is refundable. What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $7,500 home buyer tax credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owed).

9) What is the difference between a tax credit and a tax deduction?
A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer's tax liability would be reduced by $1,125 (15 percent of $7,500), or lowered from $7,500 to $6,375.

10) Does the credit have to be paid back to the government? If so, what are the payback provisions?
Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

11) Why must the money be repaid?
Congress's intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from stabilized and, eventually, increasing future housing prices.

12) Because the money must be repaid, isn't the first-time home buyer program really a zero-interest loan rather than a traditional tax credit?
Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%, that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax credit saves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability in the year it is claimed.

13) If I'm qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

14) Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return?
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.

The "2009 Federal Economic & Housing Stimulus Package " which offered up to $8,000 in tax credits or rebates is a completely different program.  It still only applies to first-time homebuyers, but is a true tax credit or tax rebate that does not have to be paid back.  It also only applies to owner-occupied homes purchased from January 1st - November 30, 2009.  For additional information on the he 2009 Stimulus Plan and how you might be able to take advantage of these incredible savings, please visit my 2009 Stimulus page.

 

New FHA Loan Limits in Colorado for 2009

The FHA Loan Limit for Adams County has Increased to $406,250 - (Denver-Aurora)
The FHA Loan Limit for Arapahoe County has Increased to $406,250 - (Denver-Aurora)
The FHA Loan Limit for Boulder County has Increased to $460,000 - (Boulder)
The FHA Loan Limit for Broomfield County has Increased to $406,250 - (Denver-Aurora)
The FHA Loan Limit for Denver County has Increased to $406,250 - (Denver-Aurora)
The FHA Loan Limit for Douglas County has Increased to $406,250 - (Denver-Aurora)
The FHA Loan Limit for Jefferson County has Increased to $406,250

FHA

• The minimum down payment for FHA loans in 2009 is 3-1/2%.

• HUD Properties listed as FHA "Yes" are NOT always FHA Insurable (ie: inspection items)

• Foreclosure "ok"...as long as it's been 3 years from date of PT Deed or date of paid claim

• No seller down payment assistance allowed!

• Seller and/or interested party concessions up to 6% of sales price

The American Recovery and Reinvestment Act of 2009*

How will these new increased FHA loan limits effect new home buyers?
The new higher loan limits will allow FHA loans (which require a low 3.5% down payment) to be
available for a greater range of home price options where conventional loans (requiring 10-20%
down) would normally have been the only available option for financing.

How can FHA help me buy a new home?
FHA insured mortgages offer many benefits that only come with FHA:

• Easier to Qualify: Because FHA insures your mortgage, lenders may be more willing to give you loan terms that make it easier for you to qualify.

• Less than Perfect Credit: You don't have to have a perfect credit score to get an FHA mortgage. In fact, even if you have had credit problems, such as a bankruptcy, it's easier for you to qualify for an FHA loan than a conventional loan.

• Low Down Payment: FHA loans have a 3.5% down payment and that money can come from a family member, employer or charitable organization as a gift. Other loan programs don't allow this. FHA loans also require no cash reserves in many cases.

• Costs Less: FHA loans have competitive interest rates because the Federal government insures the loans. Always compare an FHA loan with other loan types.

• Competitive Rates & Terms: Compared with other lower down payment programs, FHA interest rates are similar. In some cases FHA loans offer lower overall monthly payments when including its lower cost of monthly mortgage insurance vs. PMI (Private Mortgage Insurance).

• Non-occupying co-borrowers are allowed: such as family members that are needed to help you in qualifying for your loan, but won’t actually be living with you in your new home.

• Helps You Keep Your Home: The FHA has been around since 1934 and will continue to be here to protect you. Should you encounter hard times after buying your home, FHA has many options to help you keep you in your home and avoid foreclosure.

Who qualifies for FHA financing?
To be eligible for an FHA loan, you must have a valid social security number and have lawful residency in the United States (US Citizens, Permanent Resident Aliens, and Non-Permanent Resident Aliens) and be of a legal age to sign on a mortgage in your state.  Lenders will verify income, assets, liabilities, and credit history for all parties on the loan. FHA's mortgage programs do not typically have maximum income limits for qualifying, although you must have sufficient income to qualify for the mortgage payment and other debts. Income limits may be present when qualifying for down payment assistance or other secondary financing programs that may be used in along with an FHA loan.

Is FHA just for First Time Home Buyers?
Although it’s known as a popular first-time homebuyer program, FHA is not restricted to first-time homebuyers. An FHA loan can be an excellent choice for anyone buying a new home including buyers who have used FHA mortgages in the past.

If I’ve had credit problems in the past, will this hurt my chances of being approved on an FHA loan?
As a general rule of thumb after having credit problems (such as bankruptcy or foreclosure
in the past), you should be in a situation where you’ve made your payments on time for at
least the past 12-24 months for an FHA loan.

Can FHA financing be used to purchase second homes or investment property?
NO. FHA financing may only be used to purchase a primary residence and is currently not used
for second homes or investment properties.

Can gift funds come from the seller, lender or other interested party?
The gift donor may not be a person or entity with an interest in the sale of the property, such
as the seller, real estate agent or broker, builder, or any entity associated with them. Gifts
from these sources are considered inducements to purchase and must be subtracted from
the sales price for mortgage calculation purposes.

The exceptions to this rule are:
1. When parents are the sellers.
2. When the real estate agent is a relative.
Is it acceptable to get a loan for the down payment?

Funds can be borrowed for the total required investment as long as satisfactory evidence is
provided that the funds are fully secured by investment accounts or real property. Such
assets may include stocks, bonds, automobiles, collections, real estate (other than the
property being purchased), etc.

In addition, certain types of loans secured against deposited funds, such as signature loans,
the cash value of life insurance policies, loans secured by 401(k)s, etc., in which repayment
may be obtained through extinguishing the asset; do not require consideration of a
repayment for qualifying purposes. However, in such circumstances, the asset securing the
loan may not be included as assets to close or otherwise considered as available to the
borrower.

An independent third party must provide the borrowed funds. The seller, real estate agent or
broker, lender, or other interested third party may not provide such funds.  Unacceptable borrowed funds include signature loans, cash advances on credit cards, borrowing against household goods and furniture and other similar unsecured financing.

Contact me to learn more about these new FHA rules and how they can help you get the home of your dreams. It really has never been a better time to buy a home.  Prices have "corrected" or adjusted to more practical levels & interest rates are still at historic lows.

*This information is provided for general awareness only, and is not intended for the purpose of providing legal, accounting, financial, tax advice or consulting of any kind. Please consult with your lender for complete details on any lending program.

 

Down Payment Assistance Programs
Homebuyers, there are still plenty of State & local programs available to provide down payment assistance.  Contact me or your mortgage broker for current funding options.

• Colorado Housing & Finance Authority (CHAFA) - 3% of loan amount
  - not limited to first-time homebuyers
  - income limits apply
  - Adams, Denver, Douglas & Jefferson County = $85k/year (single) & $97,700 (2 person)
  - no purchase price limitations
  - $1,000 required investment (this is the minimum amount required from you)
  - no cash back at closing!

• Colorado Housing Assistance Corp - (CHAC)
  - Denver & Jefferson County
  - income limits apply
  - up to $10,000 with three repayment options

• City of Aurora - 5% and closing costs - up to $10,000
  - for properties located in the City of Aurora
  - income limits apply

• Adams County Housing Authority
  - down payment, closing costs & pre-paids
  - income limits apply

• March 2009 - 620 FICO score from at least one buyer  required

• a 10% drop in housing prices is wiped out by a 1/2% interest rate hike!

• Denver Metro is rated as the #2 recovering housing market in the nation.

• FHA financing only requires a 3.5% down payment & $100 down on HUD homes!

• Denver Metro area home inventory is down nearly 40% from the same time last year.

• First-time homebuyer includes ANY purchaser who has not owned a home for at least three years.