AD Singleton & Co, CPA, Inc.'s Watch Your Wallet! A newsletter for clients and friends. April 2009 | Published by ADSCPA A collection of practical tax and financial tips, articles, and resources targeted to help you watch your wallet and keep what you earn. Subscribe

The first-time homebuyer credit created by last year's housing law didn't do much to spur home sales throughout the country. But the new economic stimulus law -- the American Recovery and Reinvestment Act of 2009 -- sweetens the pot. The revamped first-time homebuyer credit applies to home purchases made after Dec. 31, 2008 and before Dec. 1, 2009.

Old Credit - A Loan

Prior to the new law, a first-time homebuyer could claim a refundable tax credit equal to the lesser of $7,500 or 10% of the price of a home purchased after April 8, 2008 and before July 1, 2009. A first-time homebuyer was defined as someone who has not owned a principal residence for the three years prior to the purchase. If you made a qualified purchase in 2009, you could elect to use the credit to offset your 2008 tax liability.

However, the previous version of the homebuyer credit came with a steep price attached. Unlike other tax credits, you are required to pay back the credit to the IRS in equal installments over 15 years. So the "credit" really amounts to nothing more than an interest-free loan from Uncle Sam. Plus, you have to repay the entire balance if you stop using the home as your principal residence. Other special rules governing divorces and involuntary conversions may apply.

New Credit - 'Free' Money!

Now the new law sweetens things up. For starters, it bumps the maximum credit up to $8,000 from $7,500. Taxpayers can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately. Second, you no longer have to repay the credit so long as you continue to live in the home for at least three years following the purchase. (However, you must recapture the credit if you stop using the home as your principal residence during this three-year period.)

The amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000 for single taxpayers, or $150,000 for joint filers.

Options For Filing

First time homebuyers have lots of options at their disposal to claim the new $8,000 first-time homebuyer credit for 2009 home purchases. For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they’ve already filed their 2008 tax return.

Note: Taxpayers can claim the credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

The filing options to consider are:

• File an extension. Taxpayers who haven’t filed their 2008 returns but are buying a home soon can request a six-month extension to October 15. This step would be faster than waiting until next year to claim it on the 2009 tax return. Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit.

• File now, amend later. Taxpayers due a sizable refund for their 2008 tax return but are also considering buying a home in the next few months can file their return now and claim the credit later. Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit.

• Amend the 2008 tax return. Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.

• Claim the credit in 2009 rather than 2008. For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when they file their 2009 tax returns rather than claiming it now on their 2008 tax returns. This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

As you can see, there are many options available to first-time homebuyers related to this credit. We can provide tax guidance if you or someone you know is contemplating a home purchase or recently purchased one. Call our office at 760-747-4605 to set up an appointment.