Upon launching my blog earlier this month, I invited a number of professionals with whom I’ve worked throughout the years to contribute timely posts for my Guest Book. In light of the just-passed American Recovery and Reinvestment Act of 2009, attorney David Grisamore sorts out some differences between the new economic stimulus law and the earlier version passed in 2008; and suggests you consult your tax advisor…

There is some good news for first-time home buyers with moderate incomes this year: The stimulus bill signed into law by President Obama contains an $8,000 home-buyer credit for calendar year 2009. This credit is a somewhat revised and extended credit from that contained in the stimulus legislation passed in 2008 and signed into law by President Bush. Since there are some significant differences in the old versus the new credit, it is worthwhile for readers to review the details.

How it Works

Assuming the transaction qualifies, the taxpayer may deduct the available credit from their taxes owed at the end of 2009. Thus, a taxpayer owing $6,000 in federal income tax would have a tax bill of $0 after the qualifying purchase. Even better, the revised version allows the purchaser to claim and receive the remaining $2,000 of the credit as a “refund.” For taxpayers with payroll withholding, the refund would be much larger, since the IRS would already be holding the bulk of the refund as payroll withholding from each check.

First-Time Buyers

The tax credit is available to first-time home buyers who purchase a primary residence from January 1, 2009 - November 30, 2009. “First-time home buyer” is defined, surprisingly narrowly, as any person who has not owned a home in the previous three years. Thus, a purchaser who last owned a home in June of 2006 (with a closing on June 30, say) would be eligible for the credit on a residence purchased and closed on between July 1, 2009 and November 30, 2009.

Limits

The credit is available for up to 10% of the purchase price of the home. Thus, a property costing $80,000 or more will be eligible for the maximum credit of $8,000. In a market like Chicago this will obviously cover most home purchases.

There is an upper income limit of $75,000 for a single taxpayer and $150,000 for a married couple filing jointly, but this is only for utilitization of the full amount of the credit. For incomes over $75,000/$150,000 filing jointly, the credit is phased down. The credit is not available for incomes above $95,000 or $170,000 filing jointly.

No Repayment

Under the former legislation the credit was “recaptured” over 15 years. The new law does away with this IRS claw-back and no credits will have to be repaid. EXCEPTION: If the home is sold within three years, the entire amount will have to be repaid in the year of the sale.

Bottom Line

For a qualifying purchase this credit is little different from an IRS gift of equity. All you have to do is wait for year end 2009 to get your check.

David Grisamore is a graduate of Knox College and De Paul University College of Law. He has been in private practice since 1996 handling real estate and commercial litigation matters. For additional information please contact: Law Offices of David T. Grisamore, 53 W. Jackson Blvd., Suite #1643, Chicago, IL 60604; tel. 312. 913-3448; dgriz67@sbcglobal.net.