|
To get the
word out to the home-buying public, NAHB has assembled materials that will
help association members maximize the impact of this temporary sales
incentive.
Among those
resources:
-
NAHB has activated a
Web site for consumers —
www.federalhousingtaxcredit.com. The site includes details and
questions and answers on how home buyers can use the credit.
-
On
www.nahb.org/mythbuster, NAHB will be posting talking points,
print ads, a consumer handout on the “top reasons you shouldn’t wait to
buy a new home,” and a banner ad for Web sites — all geared to alerting
home buyers to the availability of the credit. (This site will become
active as soon as the legislation is signed by President Bush.)
Any home buyer who has not owned a home during the past three years and is a
U.S. citizen who files taxes is eligible to participate in this program.
(Some home buyers who are not citizens may also qualify; see #14 in the
questions and answers below.)
To qualify,
buyers must actually close on the sale of the home on or after
April 9, 2008 and before
July 1, 2009. The original eligibility period expired in April 2009, but
following a major grassroots campaign from NAHB members, the period was
extended to enable home builders to include the credit in their sales and
marketing next spring and into the early summer — the peak home buying
season.
The program
does have income limits. Single or head-of-household filers can claim the
full $7,500 credit if their adjusted gross income (AGI)
is less than $75,000. For married couples filing a joint return, the income
limit doubles to $150,000.
Single or
head-of-household taxpayers who earn between $75,000 and $95,000 are
eligible to receive a partial first-time home buyer tax credit. The same
applies to married couples who earn between $150,000 and $170,000.
The credit is
not available for single taxpayers whose AGI is greater than $95,000 and
married couples with an AGI exceeding $170,000.
A refundable
credit means that if a taxpayer pays less than $7,500 in federal income
taxes, the government will write them a check for the difference. For
example, if $5,000 in federal taxes is owed, the taxpayer would pay nothing
and a $2,500 payment would be received from the
IRS.
If a qualifying home buyer were owed a $1,000 tax refund, they would receive
$8,750.
Buyers can
take the tax credit on their 2008 or 2009 tax return. Those who close in
2008 take the credit on their 2008 return. Buyers in 2009 have the option of
taking the credit on their 2008 or 2009 returns.
The
tax-credit program also has payback provisions.
The credit
essentially serves as an interest-free loan to be repaid over 15 years. For
example, a home buyer claiming a $7,500 credit would repay the credit at
$500 per year. If the home owner sold the home, then the remaining credit
would be due from the profit of the home sale.
If there is
insufficient profit, then the remaining credit payback would be forgiven.
For more
information on NAHB tax credit resources, e-mail
NAHB Public Affairs or
call 800-368-5242 x8061.
Questions and
Answers for Consumers
Following are
the “Frequently Asked Questions About the First-Time Home Buyer Tax Credit”
that appear on NAHB’s consumer Web site —
www.federalhousingtaxcredit.com.
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.
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 or her spouse. For example, if you have not owned a home in
the past three years but your spouse has owned one, neither you nor your
spouse qualifies for the first-time home buyer tax credit.
3. 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.
4. Are there
income limits to determine who is eligible to take the tax credit?
Yes. Home
buyers who file their taxes as single or head-of-household taxpayers can
claim the credit if their modified adjusted gross income (MAGI) is less than
$75,000. For married taxpayers filing a joint tax return, the MAGI limit is
$150,000. The limit is based on the buyer’s modified adjusted gross income
for the year that the house is purchased, except for certain purchases in
2009.
5. What is
“modified adjusted gross income”?
Modified
adjusted gross income, or
MAGI,
is defined by the IRS. To find it, a taxpayer must first determine “adjusted
gross income,” or AGI, which is total income for a year minus certain
deductions (known as “adjustments” or “above-the-line deductions”), but
before itemized deductions from Schedule A or personal exemptions are
subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and
first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4
(as of 2007). Note that
AGI
includes all forms of income — including wages, salaries, interest income,
dividends and capital gains.
To determine
modified adjusted gross income (MAGI),
add to AGI certain amounts such as foreign income, foreign-housing
deductions, student-loan deductions, IRA-contribution deductions
and deductions for higher-education costs.
6. If my
modified adjusted gross income (MAGI)
is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $7,500 are
available for some taxpayers whose
MAGI
exceeds the phaseout limits. The credit becomes totally unavailable for
individual taxpayers with a modified adjusted gross income of more than
$95,000 and for married taxpayers filing joint returns with an
AGI
of more than $170,000.
7. 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.
8. 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 its 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.
9. Are there
any circumstances under 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.
10. 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 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 15. 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).
11. 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% 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% of $7,500), or lowered from
$7,500 to $6,375.
12. Can I
claim the tax credit if I finance the purchase of my home under a mortgage
revenue bond (MRB) program?
No. The tax
credit cannot be combined with the MRB home buyer program.
13. I live in
the District of Columbia. Can I claim both the D.C. first-time home buyer
credit and this new credit?
No. You can
claim only one.
14. I am not
a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone
who is not a nonresident alien (as defined by the IRS), who has not owned a
principal residence in the previous three years and who meets the income
limits test may claim the tax credit for a qualified home purchase. The IRS
provides a definition of “nonresident alien” in
IRS
Publication 519 (www.irs.gov/pub/irs-pdf/p519.pdf).
15. 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.
16. Why must
the money be repaid?
The intent of
Congress 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 impact on the U.S.
Treasury and assumes that home buyers will benefit from stabilized and,
eventually, rising future housing prices.
17. 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 more than $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.
18. 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 Dec. 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.
19. For a
home purchase in 2009, can I choose whether to treat the purchase as
occurring in 2008 or 2009, depending on in which year my credit amount is
the largest?
Yes. If the
applicable income phase out would reduce your home buyer tax credit amount
in 2009 and a larger credit would be available using the 2008 MAGI amounts,
then you can choose the year that yields the largest credit amount. |
