Guidance Package From My CPA for Stimulus Package 1st Time Buyer Tax Credit

Facts about the First-Time Homebuyer Credit

June 4, 2009

Principal residence purchased after April 8, 2008 and before December 1, 2009.

Credit is 10% of the purchase price up to $8,000 in 2009.
The phase out is modified AGI between $150,000 and $170,000 for married couples filing jointly and $75,000 and $95,000 for single taxpayers.

Renters who also own a vacation home may qualify for the credit since the three-year look back period for owning a home applies only to a principal residence.

Two or more unmarried individuals may purchase a residence and qualify for the credit.

They must allocate the amount of the credit between them as the IRS prescribes. Which is any reasonable basis according to recently issued guidance (Notice 2009-12). However, the total amount of the credit allowed to the individuals jointly may not exceed $8,000.

Married filing separately splits the credit to $4,000 each. Must keep the house as principal residence for three years or pay back the credit.

Exceptions apply for death, involuntary conversion and for a residence transferred in a divorce. IRS will disallow credit for nonresident alien or the taxpayer's financing is from tax-exempt mortgage revenue bonds. Repayments under the $7,500 credit start 2 years after the year in which the residence is purchased (2010). Recapture of credit is limited to the gain from the sale of the residence, but the credit reduces your basis in the property for figuring the gain. "Purchase" as used in the new law occurs when title closes and is "nearly any acquisition by the taxpayer". "A home constructed by the taxpayer is treated as purchased by the taxpayer on the date the taxpayer first occupies it. Residence cannot be acquired from certain related persons. An individual's family is limited to spouse, ancestors and lineal descendants, and does not include siblings. FHA lenders can apply the tax credit to their down payment in excess of 3.5% of appraised value or their closing costs. Borrowers must still make a minimum 3.5% down payment without using the tax credit. McCauley, Nicolas & Company LLC Certified Public Accountants OMB No. 1545-0074
First-Time Homebuyer CreditForm 5405 (Rev. February 2009) 2008 . Attach to Form 1040 Department of the Treasury Attachment Internal Revenue Service Sequence No. 163 Name(s) shown on return
Your social security number
General Information A Address of home qualifying for the credit (if different from the address shown on return) B Date acquired (see instructions) C If you are choosing to claim the credit on your 2008 return for a main home bought after December 31, 2008, and before December 1, 2009, check here (see instructions) .

Credit 1 Enter the smaller of: . $7,500 ($8,000 if you purchased your home in 2009), but only half of that amount if marriedfiling separately, or
. 10% of the purchase price of the home.If someone other than a spouse also held an interest in the home, enter only your share of thisamount (see instructions)

1 2 Enter your modified adjusted gross income (see instructions) 2 3 Is line 2 more than $75,000 ($150,000 if married filing jointly)? No. Skip lines 3 through 5 and enter the amount from line 1 on line 6. Yes. Subtract $75,000 ($150,000 if married filing jointly) from the amount on line 2 and enter the result 3 4 Divide line 3 by $20,000 and enter the result as a decimal (rounded to at least three places). Do not enter more than 1.000 4 5 Multiply line 1 by line 4 5 6 Subtract line 5 from line 1. This is your credit. Enter here and on Form 1040, line 69 6 X
.
General Instructions Section references are to the Internal Revenue Code. Purpose of Form Use Form 5405 to claim the first-time homebuyer credit. The credit may give you a refund even if you do not owe any tax. For homes purchased in 2008, the credit operates much like an interest-free loan. You generally must repay it over a 15-year period. For homes purchased in 2009, you must repay the credit only if the home ceases to be your main home within the 36-month period beginning on the purchase date. See Repayment of Credit on page 2.
Who Can Claim the Credit In general, you can claim the credit if you are a first-time homebuyer. You are considered a first-time homebuyer if: . You purchased your main home located in the United States after April 8, 2008, and before December 1, 2009.
. You (and your spouse if married) did not own any other main home during the 3-year period ending on the date of purchase.
If you constructed your main home, you are treated as having purchased it on the date you first occupied it. Main home. Your main home is the one you live in most of the time. It can be a house, houseboat, housetrailer, cooperative apartment, condominium, or other type of residence.
Who Cannot Claim the Credit You cannot claim the credit if any of the following apply. 1. Your modified adjusted gross income is $95,000 ormore ($170,000 or more if married filing jointly). See the instructions for line 2.
2. You are, or were, eligible to claim the District ofColumbia first-time homebuyer credit for any tax year. This rule does not apply for a home purchased in 2009.
3. Your home financing comes from tax-exemptmortgage revenue bonds. This rule does not apply for a home purchased in 2009.
4. You are a nonresident alien.
5. Your home is located outside the United States.

6. You sell the home, or it ceases to be your mainhome, before the end of 2008.
7. You acquired your home by gift or inheritance.
8. You acquired your home from a related person.A related person includes:
a. Your spouse, ancestors (parents, grandparents, etc.), or lineal descendants (children, grandchildren, etc.).
b. A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation.
c. A partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.

For Paperwork Reduction Act Notice, see page 3. Cat. No. 11880I Form 5405 (2008) (Rev. 2-2009) Form 5405 (2008) (Rev. 2-2009) Page 2 For more information about related persons, see Nondeductible Loss in Chapter 2 of Pub. 544, Sales and Other Dispositions of Assets. When determining whether you acquired your main home from a related person, family members in that discussion (except item 7) include only the people mentioned in 8a above.
Amount of the Credit Generally, the credit is the smaller of: . $7,500 ($8,000 if you purchased your home in 2009), but only half of that amount 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 (MAGI) is $75,000 or less ($150,000 or less if married filing jointly). The phase-out of the credit begins when your MAGI exceeds $75,000 ($150,000 if married filing jointly). The credit is eliminated
completely when your MAGI reaches $95,000 ($170,000 if married filing jointly).
Repayment of Credit Homes purchased in 2008. You generally must repay the credit over a 15-year period in 15 equal installments. 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, you convert it to business or rental property, or the home is destroyed, condemned, or disposed of under threat of condemnation. 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 purposes of repaying the credit. Example 1. You claimed a $7,500 credit on your 2008 tax return. You must include $500 ($7,500 . 15) as additional tax on your 2010 tax return and on each tax return for the next 14 years. Example 2. You claimed a $7,500 credit on your 2008 tax return. In 2009, you sold the home to your son. You must include $7,500 as additional tax on your 2009 tax return. Exceptions. The following are exceptions to the repayment rule. . If you sell the home to someone who is not related to you, the repayment in the year of sale is limited to the amount of gain on the sale. (See item 8 under Who Cannot Claim the Credit for the definition of a related person.) When figuring the gain, reduce the adjusted basis of the home by the amount of the credit you did not repay.
. If the home is destroyed, condemned, or disposed of under threat of condemnation, and you acquire a new main home within 2 years of the event, you continue to pay the installments over the remainder of the 15-year repayment period.
. If, as part of a divorce settlement, the home is transferred to a spouse or former spouse, the spouse who receives the home is responsible for making all subsequent installment payments.
. If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount. Homes purchased in 2009. You must repay the credit only if the home ceases to be your main home within the 36-month period beginning on the purchase date. This includes situations where you sell the home, you convert it to business or rental property, or the home is destroyed, condemned, or disposed of under threat of condemnation. You repay the credit by including it as additional tax on the return for the year the home ceases to be your main home. If the home continues to be your main home for at least 36 months beginning on the purchase date, you do not have to repay any of the credit. 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 purposes of repaying the credit. Exceptions. The following are exceptions to the repayment rule. . If you sell the home to someone who is not related to you, the repayment in the year of sale is limited to the amount of gain on the sale. (See item 8 under Who Cannot Claim the Credit for the definition of a related person.) When figuring the gain, reduce the adjusted basis of the home by the amount of the credit.
. If the home is destroyed, condemned, or disposed of under threat of condemnation, and you acquire a new main home within 2 years of the event, you do not have to repay the credit.
. If, as part of a divorce settlement, the home is transferred to a spouse or former spouse, the spouse who receives the home is responsible for repaying the credit.
. If you die, repayment of the credit is not required. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the credit.
Specific Instructions Part I General Information Line B. Enter the date you acquired the home. This is the date you purchased it (or the date you first occupied it if you constructed your main home). Line C. You can choose to claim the credit on your 2008 Form 1040 for a main home purchased after December 31, 2008, and before December 1, 2009. If you make this choice, check the box. Part II Credit Line 1. If two or more unmarried individuals buy a main home, they can allocate the credit among the individual owners using any reasonable method. The total amount allocated cannot exceed the smaller of $7,500 ($8,000 if you purchased your home in 2009) or 10% of the purchase price. See Purchase price on page 3. Note. A reasonable method is any method that does not allocate all or a part of the credit to a co-owner who is not eligible to claim that part of the credit. Form 5405 (2008) (Rev. 2-2009) Page 3 Purchase price. The purchase price is the adjusted basis of your home on the date you purchased it. This includes certain settlement or closing costs (such as legal fees and recording fees) and your down payment and debt (such as a first or second mortgage or notes you gave the seller in payment for the home). If you build, or contract to build, a new home, your purchase price can include costs of construction. For more information about adjusted basis, see Pub. 551, Basis of Assets. Line 2. Your modified adjusted gross income is the amount from Form 1040, line 38, increased by the total of any: . Exclusion of income from Puerto Rico, and
. Amount from Form 2555, lines 45 and 50; Form 2555-EZ, line 18; and Form 4563, line 15.
Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103. The average time and expenses required to complete and file this form will vary depending on individual circumstances. For the estimated averages, see the instructions for your income tax return. If you have suggestions for making this form simpler, we would be happy to hear from you. See the instructions for your income tax return. CCH-EXP, 2009FED ¶810.011, Tax Planning: Advantages for Homeowners: First-Time Homebuyer Credit © 2009, CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Company Who is a "first-time homebuyer"? A first-time homebuyer is an individual (and, if married, the individual's spouse) who had no present ownership interest in a principal residence during the three-year period ending on the date of the home purchase that qualifies for a credit (Code Sec. 36(c)(1), as added by the Housing Assistance Tax Act of 2008 (P.L. 110-289)). Who may claim the credit? A first-time homebuyer who bought a principal residence in the District of Columbia after August 4, 1997, and before January 1, 2010, was entitled to a tax credit of up to $5,000 (or $2,500 if the taxpayer was married and filed a separate return). The allowable credit was allocated among unmarried taxpayers who purchased a home together. The amount of the credit was phased out for taxpayers with incomes above set thresholds. The taxpayer's basis in the home was reduced by the amount of the credit allowed (Code Sec. 1400C, as amended by the Emergency Economic Stabilization Act of 2008 (P.L. 110-343)). Purchases made after April 8, 2008, and before January 1, 2009. --Individuals who have not owned a home in the last three years can qualify for a refundable income tax credit of up to $7,500 ($3,750 for married persons filing separately) when they purchase a principal residence in the United States (Code Sec. 36, as added by P.L. 110-289 and amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The credit applies to purchases made after April 8, 2008, and before July 1, 2009 even if the taxpayer entered into a binding contract to purchase the home before April 9, 2008. Recapture. The homebuyer credit is recaptured ratably over 15 years, with no interest charge. The recapture operates by increasing the taxpayer's federal tax liability by 6 2/3percent of the credit amount (equal to 1/15th of the credit amount) for each year during the recapture period (Code Sec. 36(f)(1), as added by P.L. 110-289). The recapture period is the 15-year period beginning with the second tax year following the tax year of purchase. Purchases after 2008 and before December 1, 2009. --The first-time homebuyer credit increases to $8,000 ($4,000 for a married taxpayer filing a separate return) ( Code Sec. 36(b) and (h), as amended by the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5)). The recapture requirement is generally waived for such purchases unless the taxpayer sells the home within 36 months (Code Sec. 36(f)(4)(D), as added by P.L. 111-5). The credit can now be applied to homes that are financed by exempt mortgage revenue bonds or that are located in the District of Columbia (Code Sec. 36(d), as amended by P.L. 111-5). Phaseout. --The credit is phased out for taxpayers with modified adjusted gross income (AGI) in excess of $75,000 (or $150,000 for joint filers). The phaseout is complete and no credit is available when a taxpayer's modified AGI reaches $95,000 (or $170,000 for joint filers).
© 2009, CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Company MISC-DOC, 2009ARD 072-10, First-Time Homebuyer Credit Questions and Answers: Homes Purchased in 2009, IRS : First-time homebuyer credit : 2009 home purchases ., (April 14, 2009) © 2009, CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Company First-Time Homebuyer Credit Questions and Answers: Homes Purchased in 2009 April 14, 2009 IRS : First-time homebuyer credit : 2009 home purchases . First-Time Homebuyer Credit Questions and Answers: Homes Purchased in 2009 Q. Is the IRS currently accepting e-filed returns that claim the new $8,000 homebuyer credit in/for the 2008 tax year? A. Yes. Taxpayers can file Form 5405 , First Time Homebuyer Credit, electronically for home purchases in 2008 to claim the first-time homebuyer credit. IRS began processing these returns electronically on March 30, 2009. Q.I bought my home in 2009 (early) and filed my 2008 tax return claiming the $7,500 first-time homebuyer credit that has to be repaid. Now the expanded law provides for an $8,000 credit that doesn't have to be repaid. What do I need to do to get the $8,000 credit that doesn't have to be paid back?
A. You can file an amended return.
Q. If I purchase a home in June 2009, and have already filed my 2008 tax return, can I amend my 2008 return or will I have to claim it on my 2009 return?
A. You can either file an amended return to claim it on your 2008 return or claim it on your 2009 return.
Q. I am in the process of buying a home. I expect to close the deal before December 1, 2009. Can I claim the first-time homebuyer credit now? That would allow me to use the refund for a down payment.
A. No. You may not claim the credit in anticipation of a purchase that has yet to happen. Until you have finalized the purchase of your home, which for most purchasers occurs at the time of the closing, you do not qualify for the credit. IRS news release 2009-27 , First-Time Homebuyers Have Several Options to Maximize New Tax Credit, contains details for filing options if the home is purchased after April 15, 2009.
Q: When must I pay back the credit for the home I purchased in 2009? A: Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009. The obligation to repay the credit on a home purchased in 2009 arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.
Q. If I claim the first-time homebuyer credit for a purchase in 2009 and stop using the property as my principal residence before the 36 month period expires after I purchase, how is the credit repaid and how long would I have to repay it?
A. If, within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full amount of the credit is due at that time the income tax return for the year the home ceased to be your principal residence is due. The full amount of the credit is reflected as additional tax on that year's tax return. Form 5405 and its instructions will be revised for tax year 2009 to include information about repayment of the credit.
MISC-DOC, 2009ARD 072-11, First-Time Homebuyer Credit: Scenarios, IRS : First-time homebuyer credit : Scenarios ., (April 14, 2009) © 2009, CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Company First-Time Homebuyer Credit: Scenarios April 14, 2009 IRS : First-time homebuyer credit : Scenarios . First-Time Homebuyer Credit: Scenarios S1. If a single person (Taxpayer A) qualifies as a first-time homebuyer at the time he/she purchases a home with someone (Taxpayer B) that is not a first-time homebuyer and then later that year they marry each other, is the credit still allowed? A. Eligibility for the first-time homebuyer credit is determined on the date of purchase. If Taxpayer A, a first-time homebuyer, buys a house and then later that year marries Taxpayer B, not a first-time homebuyer, the credit is allowable to Taxpayer A. Taxpayer A may take the maximum credit. S2. Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Can Taxpayer A claim the credit and, if so, how much? A. Yes. Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A's primary residence. S3. A taxpayer owned her principal residence. Several years ago, she decided to relocate to a rented apartment, but did not sell the former residence. Instead, she rented it out to tenants. Now the taxpayer plans to buy another house and make it her new principal residence. Does she qualify for the first-time homebuyer credit? A: A taxpayer who owned rental property within the past three years is still eligible for the credit. The taxpayer cannot have owned and used a home as his or her principal residence within the last three years. S4. If husband and wife wanted to sell the home that the wife owned when they got married, and the husband had not owned a home within the past three years, could he qualify as a first-time homebuyer for the credit even though the wife would not qualify? A. No. The purchase date determines whether a taxpayer is a first-time homebuyer. Since the wife had ownership interest in a principal residence within the prior three years, neither taxpayer may take the first-time homebuyer credit. Section 36(c)(1) of the Internal Revenue Code requires that the taxpayer and the taxpayer's spouse not have an ownership interest in a principal residence within the prior three years from the date of purchase. The husband may not take the credit even if he filed on a separate return. Related Items: Ÿ First-Time Homebuyer Credit Questions and Answers: Basic Information Ÿ First-Time Homebuyer Credit Questions and Answers: Homes Purchased in 2008 IRS-NEWS, 2009FED ¶46,299 First-time homebuyer credit: 2009 purchases: Claiming the credit. --, IRS News Release IR-2009-27 (March 18, 2009) © 2009, CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Company IRS News Release IR-2009-27 , March 18, 2009. [ Code Sec. 36] First-time homebuyer credit: 2009 purchases: Claiming the credit. -­There are several different ways that taxpayers may claim the new $8,000 first-time homebuyer credit for 2009 home purchases, even if they have already filed their 2008 tax return. Taxpayers who are buying a home in the near future and who have already filed their 2008 tax return should consider filing an amended 2008 tax return. Filing an amended 2008 tax return would allow them to claim the first-time homebuyer credit without waiting until next year. Alternatively, taxpayers can wait and claim the homebuyer credit when they file their 2009 tax return. Waiting to claim the credit could benefit taxpayers who might qualify for a higher credit on their 2009 return, such as those with a job loss or a drop in investment income. Taxpayers who are buying a home soon but have not yet filed their 2008 returns can request a six-month extension of time to file. Alternatively, these taxpayers (especially those due a sizeable refund) could file their return now and follow up with an amended 2008 return to claim the homebuyer credit. Or, they could simply wait and claim the homebuyer credit when they file the 2009 tax return. Back reference: 4190K.11. As part of the Treasury Department's consumer outreach effort and with the April 15 individual tax filing deadline approaching, the Internal Revenue Service began a concerted effort to educate taxpayers about additional 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 tax return. The Treasury Department encourages taxpayers to explore these options to maximize their credit and get their money back as fast as possible. "The new credit can get money in the pockets of first-time homebuyers quickly," said IRS Commissioner Doug Shulman. "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 tax return." First-time homebuyers represent a significant portion of existing single-family home sales. The expansion in the first-time homebuyer credit will make it easier for first-time homebuyers to enter the housing market this year. Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchase a home before Dec. 1 receive up to $8,000 or $4,000 for married individuals filing separately. People 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: Ÿ File an extension. Taxpayers who haven't yet 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. Ÿ File now, amend later. Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house 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. Ÿ 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. Ÿ 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 the 2009 tax return rather than claiming it now on the 2008 tax return. 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. The IRS reminds taxpayers the amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000, or $150,000 for joint filers. Taxpayers can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately. For more information, including guidance for people who bought their first homes in 2008, visit IRS.gov. To learn more about the overall implementation of the Recovery Act, visit http://www.recovery.gov/.
© 2009, CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Company CCH-EXP, 2009FED ¶4190.03, First-time Homebuyer Credit: Requirements for claiming the homebuyer credit © 2009, CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Company First-time Homebuyer Credit: Requirements for claiming the homebuyer credit Individuals who purchase a principal residence in the United States after April 8, 2008, and before December 1, 2009, may be eligible for a first-time homebuyer credit ( Code Sec. 36, as added by the Housing Assistance Tax Act of 2008 ( P.L. 110-289) and amended by the American Recovery and Reinvestment Tax Act of 2009 ( P.L. 111-5)). The amount of the credit is 10 percent of the purchase price of the residence up to a maximum of $8,000 (or $7,500 depending on the date of purchase) (see ¶4190.035). The refundable income tax credit is only available to individuals who have not owned a home in the last three years. The credit is available even if the taxpayer entered into a binding contract to purchase the home before April 9, 2008 (Joint Committee on Taxation, Technical Explanation of the Housing Assistance Tax Act of 2008 ( JCX-63-08), July 23, 2008). In determining the availability of the first-time homebuyer credit, the following rules and definitions apply. l A first-time homebuyer is an individual (and, if married, the individual's spouse) who had no present ownership interest in a principal residence during the three-year period ending on the date of the home purchase that qualifies for the credit ( Code Sec. 36(c)(1), as added by P.L. 110-289). l A principal residence is defined as it is for purposes of the exclusion of gain on the sale of a principal residence ( Code Sec. 36(c)(2), as added by P.L. 110-289). See ¶7266.022. l A purchase is nearly any acquisition by the taxpayer. However, purchases do not include acquisitions (i) if the transferor and the taxpayer are related persons, (ii) if the taxpayer's basis in the property is determined in whole or in part by reference to the transferor's adjusted basis, or (iii) if the transferor was a decedent, the taxpayer's basis in the property is stepped up to the fair market value (or special use value) on the date of death (or the alternate valuation date) ( Code Sec. 36(c)(3)(A), as added by P.L. 110-289). A taxpayer is related to a transferor if his or her relationship would result in the disallowance of losses under the related party rules, except that an individual's family is limited to a spouse, ancestors and lineal descendants, and does not include siblings ( Code Sec. 36(c)(5), as added by P.L. 110-289). A home constructed by the taxpayer is treated as purchased by the taxpayer on the date the taxpayer first occupies it ( Code Sec. 36(c)(3)(B), as added by P.L. 110-289). Election to treat 2009 purchase as made in 2008. A taxpayer who purchases a home during the eligible period in 2009 can elect to treat the purchase as having been made on December 31, 2008 ( Code Sec. 36(g), as amended by P.L. 111-5). Taxpayers can file amended returns for this purpose (Joint Committee on Taxation, Technical Explanation of the Housing Assistance Tax Act of 2008 ( JCX-63-08), July 23, 2008).
© 2009, CCH INCORPORATED. All Rights Reserved. A WoltersKluwer Company Printer-friendly page from www.hud.gov Page 1 of 2 This page is located on the U.S. Department of Housing and Urban Development's Homes and Communities Web site at http://www.hud.gov/news/release.cfm?CONTENT=pr09-072.cfm.
News Release
HUD No. 09-072 For Release Lemar Wooley Friday (202) 708-0685 May 29, 2009 www.hud.gov/news/index.cfm
DONOVAN ANNOUNCES RECOVERY ACT'S HOMEBUYER TAX CREDIT CAN IMMEDIATELY HELP THOUSANDS OF FIRST-TIME HOMEBUYERS TO BUY A HOME FHA plan will stimulate new home sales and help stabilize housing market WASHINGTON - Speaking to the National Association of Home Builders Spring Board of Directors Meeting, U.S. Housing and Urban Development Secretary Shaun Donovan today announced that the Federal Housing Administration (FHA) will allow homebuyers to apply the Obama Administration's new $8,000 first-time homebuyer tax credit toward the purchase costs of a FHA-insured home. Donovan said that today's action will help stabilize the nation's housing market by stimulating home sales across the country. The American Recovery and Reinvestment Act of 2009 offers homebuyers a tax credit of up to $8,000 for purchasing their first home. Families can only access this credit after filing their tax returns with the IRS. Today's announcement details FHA's rules allowing state Housing Finance Agencies and certain non-profits to "monetize" up to the full amount of the tax credit (depending on the amount of the mortgage) so that borrowers can immediately apply the funds toward their down payments. Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate. To read the FHA's new mortgagee letter, visit HUD's website. "We believe this is a real win for everyone," said Donovan. "Today, the Obama Administration is taking another important step toward accelerating the recovery of the nation's housing market. Families will now be able to apply their anticipated tax credit toward their home purchase right away. At the same time we are putting safeguards in place to ensure that consumers will be protected from unscrupulous lenders. What we're doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing." Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 percent downpayment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of today's announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate. Buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their downpayments via secondary financing provided by the HFA or non-profit. In addition to the borrower's own cash investment, FHA allows parents, employers and other governmental entities http://www.hud.gov/utilities/print/print2.cfm?page=80$^@http%3A%2F%2Fwww%2Ehud... 6/5/2009 Printer-friendly page from www.hud.gov Page 2 of 2 to contribute towards the downpayment. Today's action permits the first-time homebuyer's anticipated tax credit under the Recovery Act to be applied toward the family's home purchase right away. Unlike seller-funded down-payment assistance, which was a vehicle for abuse, this program will allow homebuyers to shop for the best home price and services using their anticipated tax credit. According to estimates by the National Association of Home Builders, the Administration's homebuyer tax credit will stimulate 160,000 home sales across the nation - 101,000 of which will be first-time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first-time buyer purchased their home. Given FHA's current market share, it's estimated that thousands of families will be able to purchase a home by allowing the anticipated tax credit to be applied toward their purchase together with an FHA-insured mortgage. Homebuyers should beware of mortgage scams and carefully compare benefits and costs when seeking out tax credit monetization services. Programs will vary from organization to organization and borrowers should consider whether the services make sense for them, as well as what company offers the most suitable and affordable option. For every FHA borrower who is assisted through the tax credit program, FHA will collect the name and employer identification number of the organization providing the service as well as associated fees and charges. FHA will use this information to track the business closely and will refer any questionable practices to the appropriate regulatory agencies, as necessary. ### HUD is the nation's housing agency committed to sustaining homeownership; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development and enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet at www.hud.gov and espanol.hud.gov. U.S. Department of Housing and Urban Development 451 7th Street, S.W., Washington, DC 20410 Telephone: (202) 708-1112 Find the address of a HUD office near you http://www.hud.gov/utilities/print/print2.cfm?page=80$^@http%3A%2F%2Fwww%2Ehud... 6/5/2009