November 2009

November 2009

Dear Clients and Friends:

Congress included a few tax provisions in its Emergency Unemployment Compensation Extension Act. The most time-sensitive tax provision is the extension of the first-time homebuyer credit. You (or your adult children) have a few more months to look for a new home and get a bit of help from Uncle Sam toward purchasing that home.

Time to purchase qualifying home extended through April 30, 2010. In hopes of stimulating home purchases during the continuing housing market slump, Congress extended and expanded the first-time homebuyer credit. The credit was due to expire November 30, 2009, but has been extended for purchases made before May 1, 2010. A special provision allows a home purchase to qualify for the credit if a binding contract to purchase is in place by April 30, 2010, and the purchase closes before July 1, 2010.

Long-time resident of same principal residence qualifies for reduced homebuyer credit. If a homeowner (and, if married, his or her spouse) has owned and used the same home as his or her principal residence for 5 consecutive years of an 8-year period, a subsequent home purchase after November 6, 2009, will qualify for the first-time homebuyer credit. The credit for a long-time resident may not exceed $6,500.

AGI limitation increased. For purchases after November 6, 2009, the credit phase out is based on adjusted gross income in the year of purchase between $125,000 and $145,000 for a single person and $225,000 to $245,000 for joint married returns.

Limit on purchase price of home added to law. No credit is allowed for the purchase of a home after November 6, 2009, if the purchase price exceeds $800,000. Note that is not a phase-out but a cliff limitation. If you purchase a home for $801,000 you will not qualify for a credit but would if the purchase price were $799,000.

Buyer under 18 years of age cannot claim credit. No credit is allowed unless the taxpayer has attained age 18 as of the date of such purchase. If the taxpayer is married, the taxpayer will be treated as meeting the age requirement if the taxpayer's spouse meets the age requirement.

Buyer who can be claimed as a dependent of another does not qualify for the credit. The credit cannot be claimed by a buyer who can be claimed as a dependent of another taxpayer in the year of purchase.

Settlement statement required to claim the credit. To claim the credit, the taxpayer must attach, to the return claiming the credit, a properly executed copy of the settlement statement used to complete the purchase.

Purchase from family of spouse is not a qualifying purchase. A married individual purchasing a home from the family of his or her spouse has not made a qualifying purchase for the homebuyer credit. This change basically adds in-laws and stepchildren to the definition of a "close relative."

Purchased date extended through April 2011 for extended duty military, foreign service workers, and intelligence community workers. Military, Foreign Service workers, and intelligence community workers who are on extended duty outside the United States for at least 90 days are granted a 1-year extension for the purchase of qualifying property. They must complete the purchase of the qualifying home by April 30, 2011. Recapture is also waived in the case of a disposition of a home due to qualified official extended duty service.

Effective date for changes. The amendments made by the Worker, Homeownership, and Business Assistance Act of 2009 are generally effective for purchases after the date of enactment, which is November 6, 2009.

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