Now were on week three of my insanely popular (at least my mom told me she liked it) feature regarding the new-fangled $8,000.00 tax credit for new homeowners. This is yet another attempt of mine to provide a public service to you, the three readers of this column.
Once again, many thanks to the very kind people at federalhousingtaxcredit.com, here are the next set of questions.
What types of homes qualify for the tax credit?
?Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000/$500,000 capital gain tax exclusion for principal residences.
??It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouses family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.
I read that the tax credit is refundable. What does that mean?
? The fact that the credit is refundable means that the homebuyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically, this involves the government sending the taxpayer a check for a portion, or even all, of the amount of the refundable tax credit.
??For example, if a qualified homebuyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th.
Suppose now that the taxpayer qualified for the $8,000 homebuyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).
Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
?Yes. For the purposes of the homebuyer tax credit, a principal residence that is constructed by the homeowner is treated by the tax code as having been purchased on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after Jan. 1, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April, 30, 2010).
??In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.
Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
? Yes. The tax credit can be combined with an MRB homebuyer program. Note that first-time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.
I live in the District of Columbia. Can I claim both the Washington, D.C. first-time home buyer credit and this new credit?
?No. You can claim only one.
I am not a U.S. citizen. Can I claim the tax credit?
? Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of nonresident alien in IRS Publication 519.
Is a tax credit the same as a tax deduction?
?No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.
??A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayers tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.
I bought a home in 2008. Do I qualify for this credit?
?No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit. Please consult with your tax advisor for more information.
Again, stay tuned for more next week!
Chris Markham writes a weekly column for fredericknewspost.com
Christopher L. Markham is a general practice attorney based in Frederick. He can be reached at email@example.com.