By: James Gaddis, Senior Accountant, BNN Tax Division

Initiated in 2008 under the Housing and Economic Recovery Act, the February’s American Recovery and Reinvestment Act of 2009 expanded and extended the first-time homebuyers credit. Under the February 2009 legislation, the credit was for first-time homebuyers only, the credit was for $8,000, and the closing had to occur on or before December 1, 2009. The impetus for this credit was an intention to jumpstart the sluggish and falling housing markets. Due to the success and popularity of the credit in sparking home sales, Congress has extended and augmented the program once again. Thus, the Worker, Homeownership and Business Assistance Act of 2009, signed into law on November 6, 2009, has altered the program in three ways: by extending the deadline for purchasing and closing on the home, expanding the credit to long-term homeowners, and raising the income limits for those taxpayers otherwise eligible for the credit.

First, the deadline for purchasing and closing on a home has been extended from December 1November 30, 2009 to June 30, 2010. More specifically, a qualified taxpayer must enter into a binding contract to purchase a home by April 30th, and then close on the residence by June 30th. The refundable credit amount for first-time homebuyers remains constant at $8,000 ($4,000 for married taxpayers filing separately). The taxpayer has the option of claiming the credit on either their 2009 or 2010 return and may accelerate the credit by electing to treat a qualifying closing as having occurred on December 31 of the year preceding the purchase.

Second, the new legislation expands the availability of the credit to those taxpayers purchasing a replacement home for their principal residence. However, to qualify you must have owned and used the same principal residence for any consecutive 5-year period in the 8-year period which ends with the new residence purchase date. For those taxpayers who qualify, the refundable credit amount is $6,500 ($3,250 for married taxpayers filing separately). Again, the taxpayer has the option of claiming the credit on either their 2009 or 2010 return and accelerating the credit as described above.

Finally, the third change increases the income limitations for those homebuyers claiming the credit. Previously, the credit began to be phased out for single taxpayers reporting a modified gross income of $75,000, and was completely phased out for those single taxpayers reporting more than $95,000. Beginning with purchases made on November 7, 2009 (the enactment date), theThe phase out under the new legislation does not kick in until $125,000 and is completely phased out at $145,000. For married taxpayers filing jointly, the credit under the previous legislation began its phase out at $150,000 and was completely eliminated at $170,000. Now the phase out for married taxpayers filing jointly begins at $225,000 and ends at $245,000.

Because the credit was meant primarily to assist those homebuyers with lower to moderate income levels, the new legislation puts a cap on the price of the new home. In order to be eligible for the credit, the new home purchase price cannot exceed $800,000.

This newly expanded credit provides a continued opportunity for first-time homebuyers to receive a hefty credit against either their 2009 or 2010 tax liabilities, and now this credit is available to existing homeowners as well. Plus, with the option of claiming the credit in either 2009 or 2010, there is an opportunity for some tax planning. If you were thinking of buying your first home, or even upgrading your current residence, now may well be the time to be in the market for a new home!

This article is provided for informational purposes only and should not be relied upon for legal or financial advice. For more information regarding these rules, please contact James Gaddis at jgaddis@bnncpa.com or call your BNN tax professional at 800.244.7444.

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