Earlier this summer, President Obama signed into law the Homebuyer Assistance Improvement Act of 2010, which provides first-time homebuyer credit relief to taxpayers who couldn’t meet the June 30, 2010 closing date. This extension is intended to provide tax relief for those taxpayers who couldn’t close on time because of backlogs at banks and federal programs involved in homebuyer loans.

Under current law, the regular first-time homebuyer credit of $8,000 and the reduced credit of $6,500 for long-term residents expired for homes that were purchased after April 30, 2010. If the taxpayer had a written binding contract to purchase a home that was entered into before May 1, 2010 then the credit could be claimed if the home was closed on before July 1, 2010. Under the new law, if a taxpayer had a written binding contract to purchase a home before May 1, 2010 the credit may now be claimed if the closing of the home is before October 1, 2010. Taxpayers that entered into a purchase contract on or before April 30, 2010 closed after that date, should attach to their return a copy of the pages from the signed contract showing all parties’ names and signatures, the property address, the purchase price and the date of the contract.

Credit Amount

The first-time homebuyer credit is equal to the lesser of $8,000 ($4,000 for married filing separate) or 10% of the principal residence’s purchase price.

AGI Limits and requirements to the credit

The first-time homebuyer credit phaseout range (Single, HOH, MFS or QW) is betweeen $125,000 and $145,000, for a taxpayer filing a joint return the phasout is between $225,000 and $245,000.

• The first-time homebuyer credit cannot be claimed for a home if its purchase price exceeds $800,000.
• The taxpayer cannot be a dependent on another taxpayers return and must be at least 18 years old on the date of purchase.
• Homes purchased from a related party do not qualify.

Options for claiming the credit

For qualifying purchases in 2010, the taxpayer will have the option of claiming the credit on either the 2009 or 2010 return. If the 2009 return has already been filed the taxpayer can elect to amend it, or wait until they file the 2010 return. Returns that contain this credit cannot be electronically filed, but can still use direct deposit for their refunds.

Repayment of credit

For homes purchased in 2009 or 2010, the credit doesn’t have to be repaid, unless the taxpayers sells or otherwise stops using the home as a principal residence within 36 months beginning on the date of the purchase. Then, the credit is repaid in the year of sale.

By: Tracey Doane, Senior Accountant

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