First-Time Homebuyer Credit

Under the new Act, the First Time Homebuyer Credit of 10% of the value of the home increased from a maximum of $7,500 to $8,000. Under the old law the credit had to be repaid, under the new law the credit is only repaid if the home is sold within three years. The income limitations stayed the same. This means that a single person earning more than $75,000 in adjusted gross income or a married couple earning more than $150,000 is phased out of the credit.

The First Time Homebuyer is a refundable credit meaning that the credit will be repaid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe. For example, if a qualified home buyer 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 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

First time home buyers are definied as those who haven’t owned a primary residence for at least 3 years. There is no requirement that the primary residence is actually a house. The credit is applicable for the purchase of a mobile home or a boat as long as it is a primary residence. The provisions of the old law apply to homes purchased in 2008. The new law applies to homes purchased between January 1, 2009 and November 30, 2009. In the case of a purchase of a principal residence after December 31, 2008, and before December 1, 2009, a taxpayer may elect to treat such purchase as made on December 31, 2008 and claim the refund on the 2008 tax return.

Bonus Depreciation

Lawmakers reviewed the special 50% first-year bonus depreciation provisions which ended in 2008, making in applicable to assets bought in 2009. The bonus depreciation, unlike the Section 179 deduction, is available even if the business incurred a loss for the year. For self-employed taxpayers such as real estate agents this may create a Net Operating Loss that can be carried back.

New Operating Loss Carry Back

Businesses that averaged $15 million or less in gross receipts over the past three years will be allowed to carry back 2008 losses for five years instead of two. This increases the likihood that small business owners and self-employed taxpayers will receive a refund for prior years taxes.

Marianne Kingman, J.D., LL.M.
President, CEO, National Operations
http://www.kingmanwinslow.com/index.asp?viewpdf=no

Phone: 602-954-2410