Want A Home? Now’s The Time To Get It. You Save On Taxes And You Get A Credit

By Gerald Deutsch, Esq., Glen Head, NY

There have always been tax advantages to owning a home rather than paying rent.  For one thing, the interest portion of mortgage payments and real estate taxes, unlike rent paid to a landlord, is generally deductible from adjusted gross income, subject to the limits on residential interest and also to the alternative minimum tax which eliminates taxes as deductions.                                                      

There have always been tax advantages to owning a home rather than paying rent.  For one thing, the interest portion of mortgage payments and real estate taxes, unlike rent paid to a landlord, is generally deductible from adjusted gross income, subject to the limits on residential interest and also to the alternative minimum tax which eliminates taxes as deductions.                                                      

Then, the gain, if any, on the sale of the home (up to $500,000 for a married couple) is excluded from gross income. 

And because of the large number of homes on the market as a result of so many foreclosures, Congress enacted a “first time homebuyer credit” equal to 10% of the purchase price (with limitations – see below) which, on November 6, 2009, was modified and extended so that among other things, it applies not only to a “first time homebuyer” but also to “long term residents of the same principal residence” (§36(c)(6)). 

Some of the basic rules on the ability to obtain the credit are: 

*          Taxpayer must be a: 

**        first time homebuyer who is an individual and, if married, such individual’s spouse had no ownership interest in a principal residence during the 3-year period ending on the date of the purchase of the principal residence to which this rule applies, or 

**        a long term resident of the same principal residence.  This includes an individual and, if married, such individual’s spouse who has owned and used the same residence as his principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence. 

*          The residence must be purchased on or after April 9, 2008 and before May 1, 2010, or if there is a binding contract before May 1, 2010 the closing takes place by July 1, 2010. 

*          The credit limitation is: 

            **        For a first time homebuyer, $8,000 ($4,000 if married filing separately). 

**        For a long term resident of the same principal residence, $6,500 ($3,250 if married filing separately). 

*          No credit will be allowed if the purchase price exceeds $800,000. 

*          There is a limitation on higher income taxpayers: 

**        For purchases before November 6, 2009, there is a phase out if the taxpayer’s modified adjusted gross income exceeds $75,000 ($150,000 if joint return filed). 

**        For purchases after November 6, 2009, there is a phase out if the taxpayer’s modified adjusted gross income exceeds $125,000 ($225,000 if joint return filed).

There are other restrictions and rules.

This should be another incentive to assist taxpayers that would find it appropriate to (i) buy their first home or (ii) buy another home to be used as their principal residence (without the necessity of immediately selling the old home – though it could no longer be the principal residence) and perhaps reduce the number of foreclosed homes on the market.