QRE Realty Scoop

QRE Answers 8 Questions about the $8,000 1st time home buyers tax credit that you have been dying to know!



The Government says it this way...

"The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009."

Now I know what you all might be thinking... huh?! What does that all mean? How does one "Qualify", what if I'm not sure if I'm a "first time home buyer"? What kind of Maui Real Estate qualifies as "principle" residence? What kind of inventory is there in Maui County that will fit these requirements? You might be in the market for real estate, but haven't found that place that is just right. Maybe it's too much, maybe it's a dump, maybe it has a view of the ocean and both are true! Well here is the good news. You are about to get all the answers you have been looking for, plus some answers to questions you may have not known you needed. In addition to laying out the American Recovery and Reinvestment Act of 2009 in terms we can all understand, Quality Real Estate specializes in REO property and REO's = more for your money! So in addition to getting up to a $8,000 tax credit.... your paying MUCH less to start with by buying an REO home. (Don't know what an REO is? Check out QRE's last month "Realty Scoop")

Okay on to the answers:

1. Who?
First-time home buyers purchasing any kind of home—new,resale, foreclosed, REO, bank owned—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner. This is where QRE's team of experienced Realtors comes in, we work very effectively as a team. This maximizes our productivity and minimizes the stress a real estate transaction.


2. What?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the home ownership history of both the home buyer and his/her spouse.

For example, if Suzie Smith has not owned a home in the past three years but your her husband Tom Smith has owned a principal residence, neither Suzie or Tom qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Here is where Maui buyers need to pay close attention. If you purchased real estate within the last 3 years and used it for a vacation rental, you ARE STILL ELIGIBLE for the tax credit! Here is the exact quote from the Federal Housing Dept. "Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer."

3. What does it mean "up to" $8,000 tax credit?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

4. Are there income limits?
Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, 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.

5. MAGI....Huh?
Modified adjusted 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 to AGI certain amounts of foreign-earned income. See IRS Form 5405 for more details.

6. Can you Explain that to me again?
Just as an example, assume that our imaginary married couple Tom and Suzie have 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 the phaseout range of $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 the phaseout range of $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 our 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.

7. How do I actually get the credit?
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 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). No other applications or forms are 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. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase.

8. What kind of real estate is considered a "Home"?
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, stand alone ohanas, manufactured homes (also known as mobile homes) and even houseboats.

Quality Real Estate has inventory all over Maui County, from Molokai to Lahaina from Kahului to Wailea and everywhere in between. Let us find you the perfect house, estate, apartment, condo or townhouse so you can take advantage of the tax credit now, before it's too late!