Eric (Ahmad) Alzaroui

Are you a first-time home buyer? If so, there is a new credit ($$) from the IRS.
Q: What is the First-Time Homebuyer Credit and how it will impact your 2008 & 2009 Tax filing?

A: If you are a first-time homebuyer, you may be able to claim a one-time tax credit of up to $7,500 ($3,750 if married filing separately) or 10% of the purchase price of your home (whichever is smaller). The credit operates much like an interest-free loan. You generally must repay it over a fifteen year period.

Q: Who can claim the first-time homebuyer credit?

A: You purchased your main home in the United States after April 8, 2008, and before July 1, 2009, and you did not own any other main home during the 3-year period ending on the date of purchase.

Q: Can I claim the credit on a newly constructed home?

A: If you constructed your main home, you are treated as having purchased it on the date you first occupied it.

Definition of Main Home:

• Your main home is the one you live in most of the time. It can be a house, houseboat, house trailer, cooperative apartment, condominium, or other type of residence.

• You can choose to claim the credit on your 2008 Form 1040 for a main home purchased after December 31, 2008, and before July 1, 2009. If you constructed your main home, you are treated as having purchased it on the date you first occupied it.

Q:Who cannot claim the credit?

A: You cannot claim the credit if any of the following applies:

• Your modified adjusted gross income is $95,000 or more ($170,000 or more if married filing jointly);

• You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. See Form 8859;

• Your home financing comes from tax-exempt mortgage revenue bonds;

• You are a nonresident alien;

• Your home is located outside the United States;

• You sell the home, or it ceases to be your main home, before the end of 2008;

• You acquired your home by gift or inheritance;

• You acquired your home from a related person. A related person includes:

– Your spouse, ancestors (parents, grandparents, etc.), or lineal descendants (children, grandchildren, etc.;

– A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation;

– A partnership in which you directly or indirectly own more than 50% of the capital interest or profits interests.

Q: What is the amount of the credit?

A: The credit is the lesser of:

• $7,500 ($3,750) if married filing separately), or

• 10% of the purchase price of the home.

• You are allowed the full amount of the credit if your modified adjusted gross income is $75,000 ($150,000 if married filing jointly).

Q: Do I need to pay the IRS back?

A: You generally must repay the credit over a 15-year period in 15 equal installments. The repayment period begins 2 years after the year in which you claimed the credit. Thus, if you claim the credit on your 2008 tax return, the repayment period begins in 2010 and you must include the first installment as additional tax on your 2010 tax return.

If your home ceases to be your main home before the 15-year period is up, you must include all remaining annual installments as additional tax on the return for the tax year that happens. This includes situations where you sell the home or convert it to business or rental property.

If you and your spouse claim the credit on a joint return, each spouse is treated as having been allowed half of the credit for purpose of repaying the credit.

Q: Are there exceptions to the repayment rule?

A: Yes, there are exceptions. Please contact our offices for a consultation and full details on the First-Time Homebuyer Credit.

The above article is referenced to IR-2008-106, Sept. 16, 2008.

Eric (Ahmad) Alzaroui, ATA, ATP, EA is a licensed accountant. You can reach him at Paramount Accounting & Tax Services located at 13201 W Warren Ave Suite 1, Dearborn, MI 48126 (at the corner of Warren & Jonathon) or by email at: eric@paramountaccounting.com or by phone at: (313) 945-5681.