Improved 2009 creditThat loan vs. credit issue prompted Congress to revisit the homebuyer credit when it considered President Barack Obama's stimulus bill. When the American Recovery and Reinvestment Act of 2009 became law on Feb. 17, it enhanced the first-time homebuyer credit in several ways.
In its current incarnation, the tax credit amount is upped $500, to a maximum of $8,000 or 10 percent of your home's purchase price.
First-time homebuyer credit maximum amounts
|Married filing jointly||$7,500||$8,000|
|Married filing separately||$3,750||$4,000|
The new stimulus law also extends the date for qualifying home purchases to Nov. 30, 2009.
But the most significant change is that the credit is now a real credit. In most instances, the $8,000 does not have to be repaid.
Overlapping credit confusionMany homebuyers no doubt welcomed the new change. However, its overlap with the previous version produced some questions, notably just when do you claim it and how much can you claim?
The original, smaller credit included first homes bought through June 30, 2009. The new, more generous version applies to first residences purchased through November of this year. So what amount then applies to homes bought between Jan. 1 and June 30, the time period covered by both bills?
Under a strict reading on the law, says Luscombe, if you counted a 2009 home purchase as having taken place last year, you didn't have to repay the credit, but it seemed the maximum allowable credit would be the original $7,500 amount, rather than the new $8,000 tax break.
In looking at the law immediately after passage, Bob D. Scharin, senior tax analyst from the Tax & Accounting business of Thomson Reuters, also was struck by the potential for taxpayer, and tax preparer, confusion. If buying a home is what lawmakers are encouraging people to do, says Scharin, then the law needs to be clear as to exactly what the homebuyer is entitled to claim.
As tax experts pondered the two credits' implications, the IRS was working on sorting out legislative language. In late February, the agency came up with some answers.
In many cases, it's good news for homebuyers who will be able to get their hands on the $8,000 credit sooner than they expected.
Timing your tax claimIf you buy your first home by Nov. 30, you don't have to wait until next year when you file your 2009 tax return to claim the credit. Rather, you can claim it on your 2008 tax return.
Claiming the credit on a 2008 return is a no-brainer for folks who just bought or plan to close on their first home, are short on cash and have not yet filed their 2008 taxes.