Homebuyer Tax Credit Presentation

“Delivering the Home Loan Experience”

Overview

• In November, 2009 Congress extended and expanded the Homebuyer Tax Credit.

• Under the extension, purchase contracts must be in effect by April 30, 2010 and close by July 1, 2010.

• Income limits, credit amount, and current homeownership status have changed under the expanded plan.

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Summary of ChangesFeature Jan 1 – Nov 30, 2009

Enacted February 2009Dec 1 – Apr 30, 2010

Enacted November 20101st Time Buyer Credit $8000

($4000 married filing separate)Same

1st Time Buyer -Definition of Eligibility

Has not held an interest in a principal residence for 3 years prior to purchase Same

Current Homeowner Credit No Provision $6500($3250 married filing separate)

Current Homeowner –Definition of Eligibility

No Provision Home sold or being sold must have been primary residence consecutively for 5 of 8

previous years.

Termination of Credit Purchases after Nov 30 2009 Purchases after April 30, 2010

Binding Contract Rule None Written binding contract is in effect on April 30, 2010 and transaction closes by

July 1, 2010

Income Limits $75,000 – Single$150,000 – Married$20,000 Phase Out

$125,000 – Single$225,000 – Married$20,000 Phase Out

Limitation on Cost of Home None $800,000

Purchase by a Dependent None Ineligible

Anti-fraud Rule None Purchaser must attach documentation of purchase to tax return

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Definition of a 1st Time Homebuyer

•Defined as someone who has not owned a primary residence at any time during the three years prior to the date of purchase.

•For example, if you bought a home on January 15, 2010, you cannot take the credit for that home if you owned or had an ownership interest in another home at any time from January 15, 2007 through January 15, 2010. •If the last time you owned a home was prior to January 15, 2007, you are eligible for the credit even though it is really not your “first” home. •For married joint filers, both must meet the 1st time homebuyer test to take the credit on a joint return.

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Definition of a Current Homeowner

•A homebuyer who owns a home and has used it as their primary residence consecutively for 5 of the previous 8 years.

• For example, if a person owned a home for 10 years and sold it two years ago and has been renting since that time, they would be eligible for the tax credit.

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TAX Credit Details•The tax credit is a REFUNDABLE tax credit up to 10% of the purchase price with a maximum of $8000 for 1st Time Homebuyers or a maximum of $6,500 for current homeowners. If the property is $55,000, the credit is only $5,500.

•Refundable means that if your total tax liability in the given year is less than your eligible tax credit, then the IRS will send a refund for the balance.For example:

-A first-time buyer who qualifies for the full $8,000 credit and owes $5,000 in federal income taxes would pay nothing to the IRS and receive a $3,000 payment from the government. If you are due to receive a $1,000 refund, you would receive $9,000 ($1,000 plus the $8,000 first-time homebuyer tax credit).

-A repeat buyer who owes $5,000 would pay nothing to the IRS and receive $1,500 back from the government. If you are due to get a $1,000 refund, you would get $7,500 ($1,000 plus the $6,500 repeat buyer tax credit). 6

Income Limits• Applies to First Time and Current Homeowners

• The credits start to phase out for individuals with incomes above $125,000 and for joint filers who earn more than $225,000.

• This means that for singles making over $125,000 and couples making over $225,000, the credit is proportionately reduced as incomes approach $145,000 and $245,000 respectively.

• If a single filer makes $135,000, the excess amount is used to create a fraction.• $135,000 less $125,000 = $10,000 10,000/20,000 = .50 .50 X $8000 = $4,000 • The filer would qualify for $4,000 of the tax credit; this is the difference between

the $8000 tax credit and the amount of tax liability.

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TYPE INCOME LIMIT PHASE OUT

SINGLE $125,000 Additional $20,000

MARRIED $225,000 Additional $20,000

Property Eligibility•Properties must meet the definition of a principal residence. A principal residence must be the “main home”. This is generally considered to be the home where you spend 50% or more of your time. It can be a condo, single family detached home, owner- occupied two family homes, town-house or mobile home.

•Homes with a purchase price less than $800,000. •The home must be located in the United States. •Vacation homes and rental properties are not eligible. •For new construction, the “home construction contract” qualifies as a binding contract. Contract must be entered into on or before April 30, 2010, to close on or before June 30, 2010 and you must occupy the home on or before June 30, 2010.

Tax Credit Ineligibility

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Individuals are ineligible for the tax credit if any of the following:

•Income exceeds the phase-out range. This means joint filers with a Modified Adjusted Gross Income (MAGI) of $245,000 and above and other taxpayers with MAGI of $145,000 and above.•The home is purchased from a close relative. This includes a spouse, parent, grandparent, in-laws, child or grandchild – direct lineage. •The home ceases to be the primary residence.•Purchaser is under the age of 18 years old.•Purchaser is a nonresident alien.

Recapture ProvisionsIf the home is resold prior to three years of ownership, the tax credit must be repaid.

This provision is designed to prevent flipping homes in order to get the tax credit.

REPAYMENT TRIGGERS:

•Home ceases to be the primary residence.

•Home is converted to rental or business use.

•Home disposed of by foreclosure, repossession or abandonment.

•Home is sold.

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Military & Certain Civilians

•Members of the military and certain other federal employees serving outside the U.S. on extended duty beginning on or after 1/1/2009, have an extra year to buy a principal residence.

•No repayment is required for members of the military or certain other federal employees if the residence is sold or ceases to be the taxpayer’s principal residence after December 31, 2008, in connection with Government orders received by the individual (or the individual’s spouse) for extended duty.

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Co-purchase and co-signing situations:

If a home-owning parent co-signs for a mortgage with a son or daughter, and both names appear on the note, can the son or daughter qualify for the first-time purchaser credit?

The IRS says the parent clearly does not qualify for any portion of the credit since he or she already owns a principal residence. But if the son or daughter has not owned a house during the three years preceding the current purchase, and qualifies on income, he or she can be allocated the entire tax credit.

Similarly, when unmarried individuals co-purchase a house, and only one of them is eligible for the credit, the full $8,000 can be allocated to the eligible buyer. Remember, though, there is only one credit allowed per home.

Additional Info

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Documentation Needed for First-Time Home Buyers – one of the following:

Copy of Form HUD-1 (Settlement Statement) or similar document that shows all parties’ names and signatures, the property address, sales price, and date of purchase.Copy of the executed retail sales contract (in case of mobile home purchases) that shows the same information.Copy of the dated certificate of occupancy (in case of new construction) that shows the owner’s name and property address.

Additional Proof Required for Existing Homeowners

In addition to the documentation requirement above, taxpayers who fall into this category must also provide proof of the five-year residence with mortgage interest statements, property tax records, or homeowner’s insurance documents.

Required Documentation

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For Homes Purchased in 2009, you can:

•claim the credit on your 2009 tax return•file an amended 2008 tax return to claim the credit

For homes bought in 2010, you can:

•claim the credit on your 2009 tax return filed by April 15, 2010•file an amended 2009 tax return to claim the credit•or claim the credit on your 2010 tax return

As with any tax law, you should check with a professional tax advisor if there are any questions regarding this information. Information contained in this presentation can be found on the IRS Website: www.irs.gov.

Filing for the Tax Credit