March 12, 2010. Retrieved online: March 12, 2010, from Larry Tunnell/For the Sun-News, Las Cruces Sun-News
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We are at the end of an unprecedented level of support for the housing market, and part of that support has been the first-time homebuyer tax credit. The time for taking advantage of the credit is almost up, but many of you will be dealing with the credit on your tax returns, so it might be helpful to go over the rules for the credit before you file your return for this year.
If you plan to take advantage of the credit you will have to act in the next few months, since it only applies to principal residences purchased before May 1or if you have entered into a written, binding contract before May 1 to close on the purchase of a principal residence before July 1. If you are in the military and are, or were, on active duty outside the United States for at least 90 days from Dec. 31, 2008 to May 1, 2010, you have an extra year — until May 1, 2011 — to buy your house or enter into a binding, written contract to buy.
Despite its name, you can actually get the credit if you have owned your own home before. You will qualify for the credit if you haven’t owned your own home at any time in the last three years. If that applies to you, your credit will be equal to 10 percent of the purchase price of your new house, up to $8,000, or $4,000 if you are married, filing separately. If you purchased your home after Nov. 6, you can also get the credit if you have owned your own home for any five-consecutive-year period during the last eight years, but in that case your credit is limited to $6,500, $3,250 if you are married, filing separately.
The credit is “refundable”, which means that you can get the benefit of the credit even if you don’t have any tax liability for the year, for instance, if your taxable income is zero or negative. The credit can also be used against the alternative minimum tax. However, you should be aware that if you sell your house in the three years after you buy it, you will have to recapture the credit — add it to your taxes — to the extent of any gain on the sale. The gain is computed after subtracting the credit from the cost of your home, so you might have to “recapture” the credit even if the value of your house stays the same. This recapture provision does not apply to members of the military who sell because of being called away on active duty.
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Larry Tunnell, Ph.D., CPA, is a professor of accounting at New Mexico State University.