IRS Releases Rules for Repeat Buyer Tax Credit

January 27th, 2010 Categories: Real Estate

By Andrew Levy, Capitol Title (Crofton, MD)

When Congress extended the $8,000.00 First-Time Homebuyer Tax Credit to April 30, 2010, a new tax credit was enacted for “repeat” homebuyers. The problem was that taxpayers couldn’t utilize the credit because the IRS had not published the rules, nor created the forms which must be used.

Finally, on January 15, 2010, the IRS posted its revised Form 5405 on its web site, www.irs.gov.

The key provisions of the new rules are as follows:

Taxpayers who have occupied their principal residence for five consecutive years during the previous eight years may be eligible to utilize the credit upon the purchase of another principal residence.
The maximum credit is 10% of the sales price with a cap of $6500.
The purchase contract must be dated between November 7, 2009 and April 30, 2010.
Members of the armed forces and certain government employees who are stationed overseas may be eligible for an additional year.
The maximum purchase price of the new home is $800,000.
Sale of the existing home is not required but must use the new house as their principal residence.
The taxpayer’s modified adjusted gross income must be $125,000 or less for an unmarried individual
Married taxpayers filing jointly must have modified adjusted gross income of $225,000 or less
Above those income limits, the credit will decrease incrementally and are eliminated at incomes of $145,000 for singles and $245,000 for taxpayers who are married and file jointly.

When the taxpayer files the applicable return, it must include the following:

A copy of the signed HUD1
Evidence of long-term ownership and occupancy (property tax records, homeowners insurance records or IRS Form 1098 mortgage interest statements.

Because of the IRS delay in issuing the rules and providing the forms, this provision does not appear to have been utilized. Now that the rules and forms are available, an additional group of prospective purchasers should be motivated to enter the market and claim their $6500.

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Thanks, Andy, for keeping Crofton home owners and real estate agents updated on the constantly-changing laws affecting our real estate transactions.