The Worker, Homeownership, and Business Assistance Act of 2009 (HR 3548) signed into law on November 6, 2009, has extended and made several changes to the first-time homebuyer credit (FTHC).

Overview:

The New Law -

• Extends the First Time Homebuyer Credit (FTHC)
• Makes the FTHC available to higher income taxpayers, but adds a limitation on the purchase price of the home
• Provides a tax credit for existing homeowners
• Includes special provisions for taxpayers in the military
• Adds "anti-abuse" measures to prevent erroneous claims

The Details -

The Act extends the FTHC to apply to a principal residence purchased before May 1, 2010. The credit is also available to a taxpayer who enters into a written, binding contract to purchase a principal residence and closes on the purchase before July 1, 2010.

As with earlier versions of the credit, credit for a qualifying 2010 purchase may be claimed on the taxpayer's 2010 return or on an original or amended 2009 return.

New income and purchase limitations

For purchases after November 6, 2009, the phase-out range for the credit is increased to modified AGI of $125,000-$145,000 ($225,000-$245,000 for joint filers). However, eligibility for the credit is limited to a home purchase price of $800,000. Important: The $800,000 purchase price is not the beginning of a phase-out range. Homes costing more than this amount do not qualify for the credit.

New! Special Rule for Current Homeowners

Taxpayers who are considered "long-time residents" of the same principal residence are now eligible to claim a credit that is equal to the lesser of a) 10% of the purchase price, or b) $6,500 ($3,250 MFS) of a subsequent principal residence. A long-time resident is one who has owned a home and used it as a principal residence for any 5 consecutive years during the 8-year period preceding the purchase of the subsequent principal residence.

This provision is effective with homes purchased after November 6, 2009. All other new rules (new phase-out range, purchase price cap, last date available for the credit) apply as well. There is no requirement that the taxpayer sell the first residence-it can be sold, converted to rental property, given as a gift, etc. as long as the taxpayer occupies the subsequent home as a principal residence.

Example: Taxpayer and spouse purchased a home together in 2000 and used the home as a rental property until December 31, 2002. In 2003, the taxpayers moved into the home and began using it as their principal residence until the purchase of a subsequent principal residence in January of 2010. The taxpayers are considered to be long-time residents because they have owned and used the home purchased in 2000 as their principal residence for 5 of the last 8 years preceding the current purchase. Therefore, the taxpayers are allowed to claim the homebuyer credit available to long-term residents (which is 10% of the purchase price up to $6500).

Special Provisions for Taxpayers in the Military

• For a taxpayer on qualified official extended duty,the FTHC is further extended to a principal residence purchased before May 1, 2011 (July 1, 2011 if the taxpayer enters into a binding contract before May 1, 2011). Qualified official extended duty means duty overseas for at least 90 days after Dec. 31, 2008, and before May 1, 2009.
• Fifteen year recapture does not apply for homes purchased before Jan. 1, 2009, if the reason for disposing of the residence is because of qualified extended official duty.

Eligibility for the Credit

The following provisions have been added to prevent erroneous claims for the FTHC. They are generally effective for homes purchased after Nov. 6, 2009.