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The New Home Owner Credit Under the Worker, Home Ownership and Business Assistance Act of 2009

By Dr. Mark Lee Levine and Libbi Levine Segev, Esq.

The weakened state of the U.S. economy has necessitated many actions by Congress. Prognosticators would argue that some of these actions are improper or unreasonable subsidies in various circumstances. Be that as it may, the anemic homebuilding market, and home sales market in general, coupled with residential defaults that have proliferated throughout the United States, have generated a desire by those in Congress, along with the President, to provide some stimulus to the home ownership position.
That stimulus came in the form of a tax credit of up to $8,000 to provide for more support for the residential home market, especially with slowing or collapsing sales in used and new homes, coupled with many foreclosures.

In this article, reference to the “Code” refers to the Internal Revenue Code of 1986 (the “Code”), as amended. Such Code has allowed a credit for home purchases. That credit initially allowed for an amount of $7,500; at the end of 2009, the Credit became the lesser of 1) $8,000, with $4,000 allowed for a married couple filing separately, or 2) 10% of the purchase price of the principal residence, assuming that the taxpayers otherwise qualified for the credit.

This housing credit was important to stimulate the economy. However, with the initial home credit expiring, there was concern that the stimulus for the market would be lost. Therefore, Congress chose to extend the credit, along with providing additional matters, under the “Worker, Home Ownership and Business Assistance Act of 2009” (WHOBA Act of 2009).

That Act was explained by the Joint Committee on Taxation in its Release entitled “Technical Explanation of Certain Revenue Provisions of the Worker, Home Ownership and Business Assistance Act of 2009” (JCX-44-09) dated November 3, 2009. That Release provided additional explanations on the home ownership issue, as well as other matters. See also such explanation at http://www.jct.gov.

Under the new law, Congress amended Section 36 of the Code and provided for changes on the credit position and further extension of the time in which to allow for a credit for home purchases, both for first time homebuyers and for qualifying existing owners that purchased a different principal residence.

The individual, under the Joint Committee explanation, is considered a “first-time homebuyer” if the individual had no home ownership in general, or no home ownership as a principal residence in the United States within a 3-year period prior to the purchase of the home in question (i.e. where the credit is claimed).

Under the prior rules, the credit limit that was allowed for a qualified purchase was $7,500, subject to being recaptured (given back) over the next 15 years. However, under the WHOBA Act of 2009 the recapture requirement has been eliminated. Thus, the “credit” evolved from a loan to a true credit, one which the taxpayer-homeowner need not repay, assuming they otherwise qualify for the credit, as noted herein. (There are many transitional rules with regard to recapture, including but not limited to situations where a taxpayer transfers or disposes of the property within 36 months from the acquisition of such property. However, the recapture rule has generally been eliminated, as noted, as long as the taxpayer-homeowner continues to use the property as the taxpayer’s principal residence.)

Under the new provisions of the WHOBA Act of 2009, the credit continues to be applicable to the principal residence. The credit will now apply for those purchases that are qualified, as noted herein, if the purchase contract is entered into before May 1, 2010 and the residence is purchased before July 1, 2010. Thus, although the credit was to have ended, Congress, under this new Act, extended the time to claim the credit.

There is a special rule for the taxpayer who has been a long-time resident of the principal residence in question (rather than a “new homebuyer”). That is, if the taxpayer is married, and the taxpayer has maintained the home as taxpayer’s principal residence for five (5) consecutive years out of the eight (8) year period ending upon the purchase of the new home, the taxpayer could still qualify for a credit. However, the credit would not be the full $8,000 amount; rather, the credit would be $6,500, or $3,250 for taxpayers who are married filing separately. Thus, although we normally say that the credit is for the “first time homebuyer,” Congress has allowed the credit to apply even for an existing homeowner, assuming certain requirements are met.

As stated, to qualify for the requirements under the tax credit, whether as a new homebuyer or a qualifying long-time homeowner, the taxpayer must use the residence in question as the taxpayer’s principal residence. There are additional requirements to be eligible for the credit. And, there are some special definitions and interpretations. A few items which may impact the eligibility for the credit include: the age of the individual seeking the credit, whether the qualifying individual is married and/or filing taxes jointly, the maximum amount of purchase price, whether the individual seeking the credit is dependent, any familial relationship between the seller and buyer, whether the individual seeking the credit is in an extended duty position or a member of the Armed Services, and whether the qualifying individual complies with other relevant code sections.

In addition to the eligibility requirements, the taxpayer will be eliminated from qualifying for the credit if the taxpayer’s modified adjusted gross income (“MAGI”), as defined in the Code, exceeds certain limits. In general, the credit will be lost for married couples filing jointly if they have an MAGI which exceeds $245,000 in the year in which the acquisition of the principal residence occurs. If one is single, the maximum MAGI is $145,000; if this is exceeded, the credit will be lost. There is a phase-out to lose the credit if the MAGI is between $125,000 and $145,000 for the single taxpayer. There is a phase-out of between $225,000 and $245,000 of MAGI for married couples filing jointly.

This is an excerpt from a soon-to-be published article by Mark Lee Levine and Libbi Levine Segev who are attorneys with the law firm of Levine Segev LLC.

To learn whether you may be able to qualify for the tax credit under the WHOBA Act of 2009 or for your other legal questions, please contact us at: (303) 434-8553 and/or http://www.levinesegev.com/contact.php.

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