The First-Time Homebuyer Tax Credit helped spur a 10.1 percent jump in sales of existing homes in October.
The tax break, which provides a refundable tax credit of up to $8,000 to people buying a home for the first time, was due to expire at the end of November, but was recently extended to the end of April by Congress and expanded to include a lesser credit for people who do not qualify as first-time buyers.
Existing-home sales including single-family, townhomes, condominiums and co-ops surged 10.1 percent to a seasonally adjusted annual rate of 6.10 million units in October from a downwardly revised pace of 5.54 million in September, according to the National Association of Realtors, and are 23.5 percent above the 4.94-million-unit level of October 2008. Sales activity is at the highest pace since February 2007, when it hit 6.55 million.
NAR chief economist Lawrence Yun was surprised at the size of the gain in October, and said that similarly robust sales may also have occurred in November. With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer, he added.
The recently approved Worker, Homeownership and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010, the IRS noted. If a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.
The maximum credit amount remains at $8,000 for a first-time homebuyer that is, a buyer who has not owned a primary residence during the three years up to the date of purchase. But the new law also provides a long-time resident credit of up to $6,500 to others who do not qualify as first-time homebuyers. To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence. For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.
A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks, said the IRS. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax returns will not be able to file electronically but instead will need to file a paper return.
A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405.
The new law raises the income limits for people who purchase homes after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.
For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.
Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law:
Dependents are not eligible to claim the credit.
No credit is available if the purchase price of a home is more than $800,000.
A purchaser must be at least 18 years of age on the date of purchase.
Members of the armed forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011. For more details on the credit, visit the First-Time Homebuyer Credit page on IRS.gov.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access