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Tax Tidbit 01/10: Worker, Homeownership and Business Assistance Act of 2009

On November 6, 2009, President Obama signed into law the “Worker, Homeownership, and Business Assistance Act of 2009” (the 2009 Assistance Act). In addition to providing an extension of unemployment benefits for the long-time jobless, the 2009 Assistance Act includes tax changes for individuals, namely changes extending and generally liberalizing the first-time homebuyer tax credit.

You may remember that the stimulus package enacted early in 2009 included an up-to-$8,000 tax credit for first-time homebuyers. This credit was scheduled to expire on November 30, 2009. The new law extends and expands the first-time homebuyer credit by:

• Extending deadlines for purchasing and closing on a home.Under the 2009 Assistance Act, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 income tax return.
• Authorizing the credit for long-time homeowners buying a replacement principal residence. For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived in the same principal residence for any five-consecutive-year period during the eight-year period that ended on the date the replacement home is purchased. One key point is that the replacement home must be a principal residence - vacation homes are not eligible.
• Raising the income limitations for homeowners claiming the credit. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The pre-2009 Assistance Act MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before November 6, 2009.

However, the 2009 Assistance Act also adds new restrictions on the first-time homebuyer tax credit by:

• Imposing an $800,000 purchase-price limitation. For purchases after November 6, 2009, the credit cannot be claimed for buying a residence for more than $800,000. There is no phase out mechanism. A purchase price that exceeds the $800,000 threshold by even a single dollar will cause the loss of the entire credit.
• Requiring a minimum age of 18 to claim the credit.
• Prohibiting dependents from claiming the credit.
• Denying the credit for purchases from parties related to the taxpayer's spouse.
• Requiring taxpayers to attach a signed copy of their settlement statement to their return.

To discuss in more detail how the changes in the Worker, Homeownership, and Business Assistance Act of 2009 might benefit you, please contact Andrew D. Ross, CPA of Bedard, Kurowicki & Co., CPA's, PC at (908) 782-7900 x 113, adr@bkc-cpa.com, or visit www.bkc-cpa.com.