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A Tax Tip Article from The Tax Institute at H&R Block
There’s great news for first-time homebuyers in 2009!
For eligible first-time homebuyers who purchase a home on or after Jan. 1, 2009 and before May 1, 2010, the first-time homebuyer tax credit is now $8,000 and unlike eligible first-time homebuyers in 2008, the qualified 2009 or 2010 first-time homebuyer no longer has to repay the credit unless the homeowner sells or moves out of the home within 3 years of purchase. This is BIG!
The tax credit is 10 percent of the purchase price of the home with a maximum credit of $8,000 (or $4,000 if married filing separately). For purchases prior to Nov. 7, 2009, the $8,000 credit begins to phase out for individuals with MAGI (modified adjusted gross income) over $75,000 and at $150,000 for married couples filing jointly. It is fully phased out for individuals with MAGI of $95,000 and at $170,000 for joint filers, half that amount for married persons filing separate returns.
For purchases after Nov. 6, 2009, the credit begins to phase out for individuals with MAGI over $125,000 and at $225,000 for married couples filing jointly. The credit is fully phased out for individuals with MAGI of $145,000 and at $245,000 for joint filers. Additionally, for purchases after Nov. 6, 2009, the credit can only be claimed if the purchase price does not exceed $800,000.
Long-time homeowners who purchase a replacement home after Nov. 6, 2009 and before May 1, 2010 can qualify for up to a $6,500 ($3,250 for couples filing separately) refundable credit. As with the $8,000 credit, the credit must only be repaid if you sell it or stop using it as your principal residence within 3 years of purchase.Qualifications
In addition to income requirements for eligibility for the $8,000 homebuyer credit, there are some other things you should know to qualify for the credit:
- You (and your spouse, if married) cannot have owned a home in the three years prior to the purchase
- You cannot purchase your new home from a close relative of you or your spouse, including a parent, grandparent, child or grandchild, though the purchase of a home from a sibling (brother or sister) does not disqualify you from claiming the credit; purchases from step-relatives are allowed for the credit as well
- You also cannot claim the credit for a home purchased from a related taxpayer such as a corporation or partnership in which you and/or your relatives (or your spouse and his or her relatives) own more than a 50% interest.
- You must purchase the home on or after Jan. 1, 2009, and before May 1, 2010; for a home under construction, you must occupy the home before May 1, 2010. Note: A special rule allows you to qualify for the credit if you have entered into a binding purchase contract before May 1, 2010, and you close on the home before July 1, 2010.
- The home must be used as your principal residence; rental property and vacation homes do not qualify for the credit
- You are not eligible for the credit if you are a nonresident alien; for married couples filing jointly, at least one of you must be a U.S. citizen or resident to qualify for the credit
- The credit does not apply to homes located outside the U.S.
- If you owned a principal residence outside of the U.S. within the last 3 years, and meet the other requirements, you are eligible to claim the first-time homebuyer credit for a home purchase in the U.S.
The eligibility rules for the $6,500 credit are similar to the rules for the $8,000 credit, except that you must have
- Owned and lived in the same principal residence for at least 5 consecutive years out of the last 8 years prior to purchasing the replacement home
- Purchased the replacement home after Nov. 6, 2009, and before May 1, 2010 (or have a binding purchase contract in effect prior to May 1, 2010 and close on the home before July 1, 2010).
Special rules may apply if you or your spouse is on extended active duty service outside the U.S.
Receiving the tax credit before you file your 2009 return
The IRS modified Form 5405, the Homebuyer Tax Credit form, in March of 2009 for those who purchased a home in 2009 and wanted to claim the credit on their 2008 return. If you want to claim the credit early instead of waiting until you file your 2009 return the tax analysts at The Tax Institute at H&R Block recommend that you consider filing an amended 2008 return (Form 1040X) so that you can receive the credit as soon as possible.Claiming the credit on your 2009 return
If you purchased a home in 2009 and choose to claim the credit on your 2009 return, you should be aware that a late-year tax law change requires that a properly executed closing statement be submitted with your return. The IRS was not able to implement electronic submission of the closing statement before the upcoming filing season. As a result, any 2009 return that includes Form 5405 cannot be filed electronically.This means that if you choose to claim the credit on your original 2009 return, the return must be mailed. You have the option of electronically filing your 2009 return without the homebuyer credit and then filing an amended return to claim the credit.
Note: Individuals who must file Form 5405 to repay the credit or report an exception to the repayment rules, also cannot electronically file Form 5405.
When in doubt …
As with any financial decision that has tax implications, the best advice is to always talk with your tax professional to determine a course of action that may be best for your individual financial situation.
This Tax Tip is brought to you by The Tax Institute at H&R Block. The Tax Institute is a national leader in providing unbiased research, analysis and interpretation of federal and state tax laws. Staffed by Enrolled Agents, CPAs and Attorneys, The Tax Institute provides industry expertise for matters related to taxes and the professional tax preparation industry.
This Tax Tip is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties. As always, everyone's tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.
A Tax Tip from The Tax Institute at H&R Block
With the year’s end fast approaching, tax analysts at H&R Block remind taxpayers there’s still time to minimize your tax bill for 2009 and build a strong financial base for 2010.
The following tips are designed to help guide you through the sometimes-confusing ins and outs of year-end tax planning, but are well-worth your time and energy.
- Estimate your income and deductions: Comparing this year’s likely income against projected 2010 earnings is the key to making wise decisions at tax time. If it looks like you’ll make more in 2009 than in 2010, you may find that you’re ineligible for important credits and deductions this year. Hence, the wisest course may be to defer as much income as possible into 2010 or postpone incurring certain expenses until next year.
Conversely, if you expect to make more in 2010 than in 2009, you may want to bunch deductions next year in order to minimize the taxes you’ll owe in 2010.
- Maximize contributions to company-sponsored plans: This is a great place for a tax break. If you have not contributed the maximum to your 401(k), find out if you can increase your contributions for the year. Your contributions are made pre-tax, which reduces your adjusted gross income and overall tax bill. Employer matching can mean even more money in your retirement plan.
- Take required minimum distributions (RMDs): If you turned 70 ½ in 2009, you must take your RMD from your traditional IRA no later than April 1, 2010, even if you are not yet retired. However, you may want to take your first RMD in 2009 because your second RMD must be taken by December 31, 2010. If you don’t take your RMD, you may owe a 50 percent penalty on the amount you should have taken.
- Pay tuition for spring semester now: If you, your spouse or your dependents have a college tuition bill for the spring 2010 semester, you might benefit from paying the spring semester tuition before the end of 2009. The education credits are subject to income limits. For 2009, the phaseout begins when modified adjusted gross income reaches $48,000 – or $96,000 for married taxpayers filing a joint return. No Hope or Lifetime Learning credit may be taken once your modified adjusted gross income reaches $58,000 – or $116,000 for married taxpayers filing a joint return. If you expect a raise in 2010 that will bring your income into or over the phaseout range, pay the tuition now to be sure you can take advantage of the Hope credit or Lifetime Learning credit. Note: To take advantage of this special provision, the 2010 semester must begin no later than March 31, 2010.
- Look out for AMT: Completing a year-end tax projection can help you determine if you’ll be subject to the AMT. Some itemized deductions are not allowed under the AMT which can result in a higher tax bill. Tactics to minimize the impact of AMT include: deferring capital gains (when appropriate), considering the timing risks associated with exercising incentive stock options and minimizing unreimbursed business expenses.
- Consider your IRA: If you’re eligible to deduct your IRA contributions, you can make traditional IRA contributions to decrease your 2009 income. And, you can contribute right up until April 15, 2010, to impact your 2009 return.
- Look at your withholding: Now is the time to ensure that you have enough tax withheld or have paid enough estimated tax to meet your projected obligations and – in the case of the estimated tax — to avoid a penalty for underpayment.
- Plan your “green” deductions: Buying a hybrid car or truck in 2009 or 2010 may allow you a tax credit ranging from $650 to $4,000. The credit is variable, based on the make and model of the vehicle and how many have been produced by the manufacturer.
- Hold your teenager’s investments for a few more years: If you’re thinking of giving investments to your child so that the income will be taxed at a lower rate, be aware that beginning in 2008 the “kiddie tax” rules continue to apply until your child reaches age 18 and, depending on your child’s school and support status, may continue to apply until your child turns 24. If the kiddie tax rules apply, your child’s unearned income, such as interest and dividends in excess of $1,800, is taxed at your marginal tax rate.
- Examine your portfolio: If you have a large net capital gain in 2009, you might want to consider reducing your tax liability by selling some stock that will generate a loss before year-end. Offsetting a short-term capital gain can be particularly advantageous, since such gains can be taxed as high as 35 percent in 2010.
This Tax Tip is brought to you by The Tax Institute at H&R Block. The Tax Institute is a national leader in providing unbiased research, analysis and interpretation of federal and state tax laws. Staffed by Enrolled Agents, CPAs and Attorneys, The Tax Institute provides industry expertise for matters related to taxes and the professional tax preparation industry.
This Tax Tip is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties. As always, everyone's tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.
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