first time home buyer tax credit

This morning, President Barack Obama signed into law H.R. 3548 bill, The Unemployment Compensation Extension Act that includes the extension, modification and expansion of the first time home buyer tax credit.

President Obama said, “Although it will take time and it will take patience, I am confident that our economy will recover. I am confident that we’re moving in the right direction. And I promise that I won’t rest until America prospers once again.”

Over the past few months, there has been a debate as to whether or not the first time home buyer tax credit should be extended. I believe that there are valid points made people on both sides of the argument.

At this point, my thought is that regardless of whether you believe that it should have been extended or not, the fact is … it has. As such, if you are a home buyer and you are looking to buy a home in the next year, do it during the extension period and take advantage tax credit.

Lastly, do I think that the home buyer tax credit will be extended again?  We’ll have to see, but I personally think that the answer will be NO, it will not be extended.  The current political thought is that for economic stimulus to work, it must create a sense of urgency.

For those interested, here is a link to the NAR Issue Brief that summarizes the Homebuyer Tax Credit changes.

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As expected, the U.S. House of Representatives decided today to extend and expand the first time homebuyer tax credit. The legislation passed with a vote of 403 to 12.

First Time Home Buyers

Now that it has passed both the Senate and the House, it will be forwarded to President Obama for his signature.

The extension to the homebuyer tax credit is part of H.R. 3548 Unemployment Compensation Extension Act of 2009 and was added through Senate Amendment. 2722.

Yesterday I provided the actual text of the amendment as it pertains to the extension, modification and expansion of the first time home buyer tax credit while reporting on the Senate vote.

Today, Jay Thompson, a known real estate expert, provided a good summary of the details of the extended home buyer tax credit on his site. I recommend reading it.

For more detailed information on the first time home buyer tax credit click here.

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The U.S. Senate late Wednesday unanimously (98-0) passed H.R. 3548: Unemployment Compensation Extension Act of 2009. This bill will extend unemployment benefits and also significantly expanding a homebuyer tax credit.  The bill is now being sent to the House and it is anticipated that it will receive a vote as early as tomorrow.  Assuming it passes, it will then be forwarded to President Obama for his signature.

The extension to the homebuyer tax credit was added to H.R. 3548 through Senate Amendment. 2722.

Below I have included the actual text of the amendment to H.R. 3548 as it pertains to the extension, modification and expansion of the first time home buyer tax credit.

SEC. 11. EXTENSION AND MODIFICATION OF FIRST-TIME HOMEBUYER TAX CREDIT.
(a) Extension of Application Period.–
(1) IN GENERAL.–Subsection (h) of section 36 of the Internal Revenue Code of 1986 is amended–
(A) by striking “December 1, 2009” and inserting “May 1, 2010”,
(B) by striking “Section.–This section” and inserting “Section.–
“(1) IN GENERAL.–This section”, and
(C) by adding at the end the following new paragraph:
“(2) EXCEPTION IN CASE OF BINDING CONTRACT.–In the case of any taxpayer who enters into a written binding contract before May 1, 2010, to close on the purchase of a principal residence before July 1, 2010, paragraph (1) shall be applied by substituting `July 1, 2010′ for `May 1, 2010′.”.
(2) WAIVER OF RECAPTURE.–
(A) IN GENERAL.–Subparagraph (D) of section 36(f)(4) of such Code is amended by striking “, and before December 1, 2009”.
(B) CONFORMING AMENDMENT.–The heading of such subparagraph (D) is amended by inserting “AND 2010” after “2009”.
(3) ELECTION TO TREAT PURCHASE IN PRIOR YEAR.–Subsection (g) of section 36 of such Code is amended to read as follows:
“(g) Election to Treat Purchase in Prior Year.–In the case of a purchase of a principal residence after December 31, 2008, a taxpayer may elect to treat such purchase as made on December 31 of the calendar year preceding such purchase for purposes of this section (other than subsections (c), (f)(4)(D), and (h)).”.
(b) Special Rule for Long-Time Residents of Same Principal Residence.–Subsection (c) of section 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
“(6) EXCEPTION FOR LONG-TIME RESIDENTS OF SAME PRINCIPAL RESIDENCE.–In the case of an individual (and, if married, such individual’s spouse) who has owned and used the same residence as such individual’s principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time homebuyer for purposes of this section with respect to the purchase of such subsequent
residence.”.
(c) Modification of Dollar and Income Limitations.–
(1) DOLLAR LIMITATION.–Subsection (b)(1) of section 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:
“(D) SPECIAL RULE FOR LONG-TIME RESIDENTS OF SAME PRINCIPAL RESIDENCE.–In the case of a taxpayer to whom a credit under subsection (a) is allowed by reason of subsection (c)(6), subparagraphs (A), (B), and (C) shall be applied by substituting `$6,500′ for `$8,000′ and `$3,250′ for `$4,000′.”.
(2) INCOME LIMITATION.–Subsection (b)(2)(A)(i)(II) of section 36 of such Code is amended by striking “$75,000 ($150,000” and inserting “$125,000 ($225,000”.
(d) Limitation on Purchase Price of Residence.–Subsection (b) of section 36 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
“(3) LIMITATION BASED ON PURCHASE PRICE.–No credit shall be allowed under subsection (a) for the purchase of any residence if the purchase price of such residence exceeds $800,000.”.
(e) Waiver of Recapture of First-Time Homebuyer Credit for Individuals on Qualified Official Extended Duty.–Paragraph (4) of section 36(f) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:
“(E) SPECIAL RULE FOR MEMBERS OF THE ARMED FORCES, ETC.–
“(i) IN GENERAL.–In the case of the disposition of a principal residence by an individual (or a cessation referred to in paragraph (2)) after December 31, 2008, in connection with Government orders received by such individual, or such individual’s spouse, for qualified official extended duty service–
“(I) paragraph (2) and subsection (d)(2) shall not apply to such disposition (or cessation), and
“(II) if such residence was acquired before January 1, 2009, paragraph (1) shall not apply to the taxable year in which such disposition (or cessation) occurs or any subsequent taxable year.
“(ii) QUALIFIED OFFICIAL EXTENDED DUTY SERVICE.–For purposes of this section, the term `qualified official extended duty service’ means service on qualified official extended duty as–
“(I) a member of the uniformed services,
“(II) a member of the Foreign Service of the United States, or
“(III) an employee of the intelligence community.
“(iii) DEFINITIONS.–Any term used in this subparagraph which is also used in paragraph (9) of section 121(d) shall have the same meaning as when used in such paragraph.”.
(f) Extension of First-Time Homebuyer Credit for Individuals on Qualified Official Extended Duty Outside the United States.–
(1) IN GENERAL.–Subsection (h) of section 36 of the Internal Revenue Code of 1986, as amended by subsection (a), is amended by adding at the end the following:
“(3) SPECIAL RULE FOR INDIVIDUALS ON QUALIFIED OFFICIAL EXTENDED DUTY OUTSIDE THE UNITED STATES.–In the case of any individual who serves on qualified official extended duty service (as defined in section 121(d)(9)(C)(i)) outside the United States for at least 90 days during the period beginning after December 31, 2008, and ending before May 1, 2010, and, if married, such individual’s spouse–
“(A) paragraphs (1) and (2) shall each be applied by substituting `May 1, 2011′ for `May 1, 2010′, and
“(B) paragraph (2) shall be applied by substituting `July 1, 2011′ for `July 1, 2010′.”.
(g) Dependents Ineligible for Credit.–Subsection (d) of section 36 of the Internal Revenue Code of 1986 is amended by striking “or” at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting “, or”, and by adding at the end the following new paragraph:
“(3) a deduction under section 151 with respect to such taxpayer is allowable to another taxpayer for such taxable year.”.
(h) IRS Mathematical Error Authority.–Paragraph (2) of section 6213(g) of the Internal Revenue Code of 1986 is amended–
(1) by striking “and” at the end of subparagraph (M),
(2) by striking the period at the end of subparagraph (N) and inserting “, and”, and
(3) by inserting after subparagraph (N) the following new subparagraph:
“(O) an omission of any increase required under section 36(f) with respect to the recapture of a credit allowed under section 36.”.
(i) Coordination With First-Time Homebuyer Credit for District of Columbia.–Paragraph (4) of section 1400C(e) of the Internal Revenue Code of 1986 is amended by striking “and before December 1, 2009,”.
(j) Effective Dates.–
(1) IN GENERAL.–The amendments made by subsections (b), (c), (d), and (g) shall apply to residences purchased after the date of the enactment of this Act.
(2) EXTENSIONS.–The amendments made by subsections (a), (f), and (i) shall apply to residences purchased after November 30, 2009.
(3) WAIVER OF RECAPTURE.–The amendment made by subsection (e) shall apply to dispositions and cessations after December 31, 2008.
(4) MATHEMATICAL ERROR AUTHORITY.–The amendments made by subsection (h) shall apply to returns for taxable years ending on or after April 9, 2008.
SEC. 12. PROVISIONS TO ENHANCE THE ADMINISTRATION OF THE FIRST-TIME HOMEBUYER TAX CREDIT.
(a) Age Limitation.–
(1) IN GENERAL.–Subsection (b) of section 36 of the Internal Revenue Code of 1986, as amended by this Act, is amended by adding at the end the following new paragraph:
“(4) AGE LIMITATION.–No credit shall be allowed under subsection (a) with respect to the purchase of any residence unless the taxpayer has attained age 18 as of the date of such purchase. In the case of any taxpayer who is married (within the meaning of section 7703), the taxpayer shall be treated as meeting the age requirement of the preceding sentence if the taxpayer or the taxpayer’s spouse meets such age requirement.”.
(2) CONFORMING AMENDMENT.–Subsection (g) of section 36 of such Code, as amended by this Act, is amended by inserting “(b)(4),” before “(c)”.
(b) Documentation Requirement.–Subsection (d) of section 36 of the Internal Revenue Code of 1986, as amended by this Act, is amended by striking “or” at the end of paragraph (2), by striking the period at the end of paragraph (3) and inserting “, or”, and by adding at the end the following new paragraph:
“(4) the taxpayer fails to attach to the return of tax for such taxable year a properly executed copy of the settlement statement used to complete such purchase.”.
(c) Restriction on Married Individual Acquiring Residence From Family of Spouse.–Clause (i) of section 36(c)(3)(A) of the Internal Revenue Code of 1986 is amended by inserting “(or, if married, such individual’s spouse)” after “person acquiring such property”.
(d) Certain Errors With Respect to the First-Time Homebuyer Tax Credit Treated as Mathematical or Clerical Errors.–Paragraph (2) of section 6213(g) the Internal Revenue Code of 1986, as amended by this Act, is amended by striking “and” at the end of subparagraph (N), by striking the period at the end of subparagraph (O) and inserting “, and”, and by inserting after subparagraph (O) the following new subparagraph:
“(P) an entry on a return claiming the credit under section 36 if–
“(i) the Secretary obtains information from the person issuing the TIN of the taxpayer that indicates that the taxpayer does not meet the age requirement of section 36(b)(4),
“(ii) information provided to the Secretary by the taxpayer on an income tax return for at least one of the 2 preceding taxable years is inconsistent with eligibility for such credit, or
“(iii) the taxpayer fails to attach to the return the form described in section 36(d)(4).”.
(e) Effective Date.–
(1) IN GENERAL.–Except as otherwise provided in this subsection, the amendments made by this section shall apply to purchases after the date of the enactment of this Act.
(2) DOCUMENTATION REQUIREMENT.–The amendments made by subsection (b) shall apply to returns for taxable years ending after the date of the enactment of this Act.
(3) TREATMENT AS MATHEMATICAL AND CLERICAL ERRORS.–The amendments made by subsection (d) shall apply to returns for taxable years ending on or after April 9, 2008.

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Senate negotiators have reached a tentative deal to extend the existing first time home buyer tax credit. The current tax credit is set to expire at the end of November.

To be clear, the current 8000 first time home buyer tax credit has not yet been extended. But this current agreement is the first sign of life that has indicated that Congress potentially intends to do so.

8000 Tax Credit Extended

The agreement would extend the existing 8000 tax credit for first time home buyers and expand the credit to include current homeowners who want to move in order to give the weakened real estate market a bigger boost.

Senators have not agreed on how the tentative deal would come up for a vote, but both Democratic and Republican sources have said they are considering adding the housing credit to a bill that would extend unemployment benefits.

House Speaker Nancy Pelosi has indicated she also is interested in extending the homeowner credit, but House leaders have yet to endorse any one bill.

As I reported previously, there are currently five bills that have been introduced in Congress that would extend the existing tax credit. However, none of these have moved farther than the “referred to committee” status.

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Many people want to know if the existing Obama $8000 first time home buyer tax credit that expires on December 1st, 2009 will be extended. This is a good question. As of today, there is just under 60 days left to…

• look for;
• put in an offer on;
• negotiate and have the offer accepted on;
• qualify for a loan for;
• make sure you have enough money for down payment and closing costs for;
• get an inspection on;
• appraise the value of;
• process, underwrite and produce loan documents for;
• sign documents at title (attorney’s office) for;
• make sure the loan funds;
• and have the note and deed recorded properly for

your house. This process can easily take over 60 days.

As it stands, if this does not happen by November 30th, you will not get the tax credit. If you are still trying to take advantage of the existing $8000 first time home buyer tax credit, the time to act is now.  (Additional Information on the Obama 8000 First Time Home Buyer Tax Credit)

Here is the good news! There are a five bills that have been introduced to Congress to extend the first time home buyer tax credit.

S. 1230: Home Buyer Tax Credit Act of 2009 — introduced on June 10th, 2009. This Act proposes to replace the current tax credit for first-time homebuyers with a one-time credit for 10% of the purchase price of a principal residence, up to $15,000. Requires repayment of credit amounts if the taxpayer sells or fails to occupy the residence within 24 months after the date of purchase.

*** Status Update: As of October 3rd, 2009 S. 1230 was still in “Referred to Committee” status ***

H.R. 2801: Home Ownership Moves the Economy (HOME) Act of 2009 — introduced on June 10th, 2009. This Act proposes the following:

• extend the first-time homebuyer tax credit to all individuals who purchase a principal residence (currently, only first-time homebuyers as so defined);
• extend the credit and the waiver of recapture requirements for such credit through 2010 (expiration would be moved to January 1st, 2011);
• and repeal the limitation on the credit based on modified adjusted gross income.

*** Status Update: As of October 3rd, 2009 H.R. 2801 was still in “Referred to Committee” status ***

H.R. 2606: Home Buying Credit Expansion Act – introduced on May 21st, 2009. This Act proposes the following:

• extend the first-time homebuyer tax credit to all individuals who purchase a principal residence (currently, only first-time homebuyers as so defined);
• extend the credit and the waiver of recapture requirements for such credit through 2010 (expiration would be moved to January 1st, 2011).
• and expand the election to treat a purchase of a principal residence as made in a prior taxable year for purposes of such credit.

*** Status Update: As of October 3rd, 2009 H.R. 2606 as still in “Referred to Committee” status ***

H.R. 2619: To amend the Internal Revenue Code of 1986 to temporarily expand the credit for first-time… – introduced on May 21st, 2009. This Act proposes the following:

• to allow until June 30, 2010 a first-time homebuyer tax credit for all purchasers of a principal residence (not just first-time homebuyers);
• and provide a refundable tax credit, up to $3,000, for the costs of refinancing a principal residence.

*** Status Update: As of October 3rd, 2009 H.R. 2619 as still in “Referred to Committee” status ***

H.R. 2655: To amend the Internal Revenue Code of 1986 to expand and extend the first-time homebuyer credit – introduced on June 2nd, 2009. This Act proposes the following:

• extend the first-time homebuyer tax credit to all individuals who purchase a principal residence (currently, only first-time homebuyers as so defined);
• extend such credit and the waiver of recapture requirements for such credit through 2010;
• and expand the election to treat a purchase of a principal residence as made in a prior taxable year for purposes of such credit.

*** Status Update: As of October 3rd, 2009 H.R. 2655 as still in “Referred to Committee” status ***

On September 8th, Congress reconvened.  We will see if any of these (or a hybrid version of some/all of them) will pass.

Here is the bad news! There is less than 60 days for Congress to extend the first time home buyer tax credit and there are major issues (i.e. healthcare) that may take priority and push the tax credit to the side.

For now, we can either wait and see if the intense lobbying by groups such as the National Association of REALTORS® and National Association of Home Builders can sway our lawmakers to believe that this is a priority item or we can contact our local senator or representatives’ offices and tell them ourselves.

Senate Look-up
Representative Look-up

If you are a first time home buyer and you want to ensure that you can take advantage of the current $8000 first time home buyer tax credit, you must act now. As a reminder, the available FHA financing options are tailor-made for first time homebuyers. If you are thinking of buying a home and have more questions, please contact me at any time.

Steve Lines
FHA Mortgage Specialist
Cell: 480-329-3346
email: slines@bestFHAlender.com
www.bestFHAlender.com
http://twitter.com/stevelines

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Can you use the Obama 8000 tax credit for your FHA down payment?

Yes, No, Maybe So.

Last month on May 12th, Secretary of Housing and Urban Development Shaun Donovan created a fervor in real estate and mortgage industry when he announced in a speech to National Association of Realtors that FHA was working on an initiative to allow first time home buyers to use the 8000 tax credit created by the American Recovery and Reinvestment Act of 2009 (Obama 8000 tax credit) for their down payment on a new home.  This was followed by a mortgagee letter related to the subject being posted on HUD’s website.  Immediately real estate and mortgage professionals began to communicate this information to each other and to their clients.  Unfortunately, within a couple of days, FHA retracted the announcement as there were a number of issues with the logistics and legality of the 8000 tax credit down payment plan.

In the weeks that followed, many articles were posted on the web with a variety of information regarding whether or not you could use the Obama 8000 tax credit as a first time home buyer down payment.

There was abounding speculation since FHA was quiet regarding clarification of whether or not a first time home buyer could use the Obama 8000 tax credit as a down payment.  Finally, on May 29th, FHA re-issued Mortgagee Letter 2009-15 with details on how the Obama 8000 tax credit could be used by first time home buyers in conjunction with an FHA loan.

The following are highlights of the FHA program for the use of the Obama 8000 tax credit for first time home buyers:

Can the Obama 8000 tax credit be used for a first time home buyer’s down payment?

Yes, but only after the first time home buyer has provided the initial 3.5% FHA down payment.  After that, additional down payment funds can come from the Obama 8000 tax credit.  To be clear, a first time homebuyer can NOT use the Obama 8000 tax credit to meet the minimum FHA 3.5% down payment requirement.

Can the Obama 8000 tax credit be used to pay for the buyer’s closing costs?

Yes, a first time home buyer can use the Obama 8000 tax credit for closing costs that are normally associated with buying a home (e.g. lender fees, points, title fees, inspection fees, etc.).

How does the first time home buyer obtain upfront funds from the Obama 8000 tax credit to use to help buy a house?

FHA will permit FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local governmental agencies and instrumentalities to purchase the Obama 8000 tax credit anticipated by the first time home buyer.  In other words, one of the aforementioned sources can loan the first time home buyer the money they expect to get resulting from the Obama 8000 tax credit for a regulated fee.  In FHA’s view, fees and costs that total more than 2.5% of the anticipated credit are considered excessive.  The source of the loan can securitize the loan as a second lien on the house and may choose to require monthly payments or not.  The IRS will not allow the second lien to have a balloon payment under 10 years.

How does the first time home buyer request the Obama 8000 tax credit from the IRS?

After the first time home buyer has bought the house …

• the first time home buyer can wait until next year and file IRS form 5405 “First-Time Homebuyer” along with his or her 2009 tax return.
• the first time home buyer can file IRS form 5405 with his or her amended 2008 tax return.
• if the first time home buyer filed for an extension to the filing of their 2008 tax returs, they can submit IRS form 5405 along with his or her 2008 tax return.

Other resources regarding the Obama 8000 tax credit for first time home buyers.

Explanation of the original 7500 tax credit created by the Housing and Economic Recovery Act of 2008.

Summary of the new 2009 Obama 8000 tax credit created by the American Recovery and Reinvestment Act of 2009.

Answers to Frequently Asked Questions about the Obama 8000 tax credit for first time home buyers provided by the National Association of Home Builders.

Please contact me with any additional questions.

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What are the differences between the 2008 tax credit law and the 2009 first time home buyer tax credit law?

Last year a first time home buyer tax credit of up to $7500.00 was created as part of the Housing and Economic Recovery Act of 2008.  It went into effect on April 8th, 2008 and was set to expire July 1st, 2009.  While it had good intentions, it was basically an interest-free loan from the IRS that was required to be repaid over 15 years.  

On February 17th, 2009, President Obama signed the American Recovery and Reinvestment Act that included, as one of its key provisions, a modification of the first time homebuyer tax credit.  The majority of the workings of the first time home buyer tax credit remained the same.  But, there were some impressive revisions such as the increase of the maximum credit amount to $8000.00 and the removal of the 15 year repayment requirement.  

The following is a summary of the new 2009 Obama first time homebuyer tax credit. 

Amount of the Credit

2008 – Lesser of 10% of the cost of the home or $7500.

2009 – Maximum credit amount increased to $8000.

Eligible Property

2008 – Any single family residence (including condos, co-ops, townhouses) that will be used as a principal residence that was not purchased from a source related to them (i.e. a spouse, parent, child, etc.).

2009 – No change, any principal residence is eligible.

Refundable

2008 – Yes, the tax credit reduces (or can eliminate) income tax liability for the year of purchase. Any unused amount of tax credit refunded to purchaser.

2009 – No change, purchasers will continue to receive refund for unused amount when tax return is filed.

Income Limit

2008 – The full amount of the credit is available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). It phases out above those caps ($95,000 and $170,000).

2009 – No change, the same income limits continue to apply.

First Time Home Buyer Only

2008 – Yes.  A first time homebuyer is defined by the IRS as those not having had any ownership, including that with a spouse if married, during the three-year period ending on the date of purchase.

2009 – No change.

Revenue Bond Financing

2008 – No credit allowed if home financed with state/local bond funding.

2009 – Purchasers who utilize revenue bond financing can obtain the credit.

Repayment

2008 – Yes, a portion (6.67% of credit or $500) is to be repaid each year for 15 years, starting with 2010 tax filing.

2009 – No repayment for purchases on or after January 1, 2009 and before December 1, 2009.

Recapture

2008 – If home sold before 15-year repayment period ends, then outstanding balance of repayment amount recaptured on sale.

2009 – If home is sold within three years of purchase, entire amount of credit is recaptured on sale. Applies only to homes purchased in 2009.

Termination

2008 – July 1st, 2009

2009 – December 1st, 2009

Effective Date

2008 – Purchases on or after April 9, 2008 and before January 1st, 2009. 

2009 – All revisions are effective as of January 1st, 2009

So if you buy a house under the criteria listed above, how do you claim your first time home buyer tax credit?  

File form IRS 5405 “First-Time Homebuyer Credit” along with filing the 2008 tax return (if not yet filed), an amended 2008 tax return (if already filed), or the 2009 tax return.

Everything You Want To Know About The 2009 Obama 8000 Tax Credit for First Time Home Buyers Being Used For FHA Down Payment and Closing Costs

If you have additional questions, please contact me.

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