 | Wess Galyon is President and Chief Executive Office of the Wichita Area Builders Association which is the largest building industry trade association in the state of Kansas. He has been with the Association in this capacity since 1986 and represents the interests of builders and associates from his local association. Wess can be reached at his office, 316-265-4226. For more information, go to www.wabahome.com. |
Home Improvement
2009-05-01 11:45:00
First time home buyer tax credit - series
Question: Are there any income limits for claiming the tax credit?
Answer: The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more then $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The Tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
What is “modified adjusted gross income”?
•Answer: Modified gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI. AGI is total income for a year minus certain deductions (known as “adjustments” or “above the line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains. To determine modified adjusted gross income (MAGI), add AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.
If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
•Possibly, it depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.
Can you give me an example of how the partial tax credit is determined?
•Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000. Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800. Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.
How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
•The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous “credit” was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.
How do I claim the tax credit? Do I need to complete a form or application?
•Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first time home buyer tests.
What types of homes will qualify for the tax credit?
•Any home that will be used as a principal residence will qualify for the credit. 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.
I read that the tax credit is “refundable.” What does that mean?
•The fact that the credit is refundable means that the home buyer 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.
