Digging into the details of the home buyer tax credit - Tax Tip of the Week

By now, you have probably heard that the $8,000 first-time home buyer tax credit has been extended until July 1, 2010. This means you must have a contract in place by April 30, 2010, and the deal must close before July 1, 2010. NOTE: We do not expect this credit to be extended again.You also probably heard about the new $6,500 tax credit towards a home purchase for those who have lived in their existing homes five out of the last eight years. The new home does not need to cost more than the existing home. The credit is available for purchases from November 6, 2009 through April 30, 2010.You may not be aware, however, of some of these details:

• If you qualify for either of these credits you must now attach a copy of the closing statement (HUD-1) to your tax return for any home that closes between December 1, 2009 and June 30, 2010. We suggest that the HUD-1 be attached to the return regardless of the closing date.
• If you purchased a home in 2009 that qualifies for either credit, you can amend your 2008 tax return to receive the credit. However, we understand that it is now taking the IRS up to 20 weeks to process an amended return.  If you haven’t already amended your 2008 return by now, it will probably be best to just wait until you file your 2009 tax return.
• You do not qualify for either credit if the home is purchased from a relative, or spouse’s relatives.
• If unmarried persons purchase a home, the IRS allows you to use “any reasonable manner” to allocate the credit.
• If you qualify for the $6,500 credit it does not appear, for now anyway, that you need to sell your existing home when purchasing the new home.  It appears you could turn your existing home into a rental property or treat it as a second home.
• For either credit, the home you purchase must be your principal residence.
• You cannot use these credits to make a down payment on the purchase of the new home.  However, one strategy you could use would be for a parent to make a tax-free gift of $8,000 to an adult child (must be at least 18 years old) for the down payment.  The young adult would then pay back the gift of $8,000 in a tax-free payment upon receipt of their tax refund.

There are many other rules and scenarios regarding these tax credits.  You strongly encourage you to call us before signing any contracts.Call us with any questions. In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com....until next week.