Take advantage of tax credit on home purchase
The real estate market was hard hit during the recent financial crisis, but home ownership is still considered a good investment by many. As you file your 2010 tax return, the Pennsylvania Institute of Certified Public Accountants notes that this may be your last chance to take advantage of a valuable tax credit if you purchased a home early last year. This letter answers five common questions about the credit.
How Does the Homebuyer Credit Work?
A tax credit represents a dollar-for-dollar reduction in taxes. Because of revisions in the legislation over the last couple of years, the timing of your home purchase will affect the credit for which you might qualify.
Those who purchased in early 2010 may qualify for a credit of up to $8,000, as long as they had not owned a home during the previous three years.
Although it's popularly known as the first-time homebuyer credit, many people who owned a home but bought a new one between Nov. 6, 2009, and early 2010 may be eligible for a credit of up to $6,500. You must have owned and lived in one home as a principle residence for at least five consecutive years during the eight years preceding the purchase date of your new home.
Hasn't the Credit Expired?
For most people, the credit is no longer available for current home purchases, but you are still eligible to claim it for a principle residence that you purchased last year but before May 1. You also must have closed on the home on or before Sept. 30, 2010. The only exception is for members of the military, who have been given more time to purchase a home. Qualifying service members can claim the credit for homes that they commit to purchase by July 1, 2011.
Be sure to consult your CPA for further details on eligibility.
What Kinds of Property Qualify?
The home must cost no more than $800,000 and be located in the United States.
New construction and mobile homes are included. Vacation and rental properties don't qualify for the credit.
Are There Income Limits on the Credit?
For those who purchased a home in 2010, the full credit is available for married couples filing jointly with a modified adjusted gross income of up to $225,000.
The credit gradually phases out for those with incomes up to $245,000. For other taxpayers, the full credit is available for those with modified adjusted gross incomes up to $125,000, and is phased out for incomes up to $145,000.
What if I Don't File a Return?
There are no minimum income limits to qualify for the credit. You may be eligible for a refund of the credit even if you would not usually file a return because you don't owe taxes. Consult your CPA to find out how to claim the credit in this situation.
Your CPA Has the Answers
Because tax rules are so complex, many people aren't aware of many tax-saving opportunities that may apply to them. Your local CPA can help you identify these opportunities and make sense of all the intricacies of your financial life.
Be sure to turn to him or her with all your financial questions. To find a CPA near you, visit www.IneedaCPA.org.
The CommonWealth Tips columns are a joint effort of the AICPA and the Pennsylvania Institute of Certified Public Accountants (PICPA), as part of the profession's nationwide 360 Degrees of Financial Literacy program.
CPA, PICPA President