MA home buyer tax credit

$8,000 Home Buyer Tax Deadline Expires Today: You Need A “Binding Contract”

by Rich Vetstein on April 30, 2010

in Offer To Purchase, Purchase and Sale Agreements, Tax Credit

Today is the deadline for buyers to have a “binding contract” for the $8,000 Home Buyer Tax Credit.

  • Under the IRS guidelines, Buyers must have a “binding contract” on or before April 30, 2010, and close on or before June 30, 2010. Buyers will need to attach to their 1040 tax returns a copy of the signed contract and the HUD-1 Settlement Statement for the closing.
  • Is a signed offer to purchase or signed purchase and sale agreement sufficient for the April 30 deadline? There’s been quite a bit of debate on this issue in Massachusetts and the rest of the country with a 2-step contract process. Unfortunately, there’s been no formal IRS guidance. There is case law that the standard form Greater Boston Real Estate Board Offer to Purchase is a binding agreement. But all offers are different, and some may have special contingencies (see, short sales), which may take it out of this case law rule. Buyers can eliminate the risk of having their credit disallowed by getting a purchase and sale agreement signed by today. You can always defer the home inspection until next week and make it a contingency in the purchase and sale agreement.
  • If buyers cannot sign a purchase and sale agreement by today and intend to submit a signed offer for the tax credit know that the IRS rules require the names of all parties on the “binding contract.” Make sure the names of the sellers and buyers are legible on the offer. Realtors, who customarily fill out the offer to purchase, typically address offers to the “owner of record.” Realtors: make sure you spell out the names of both buyers and sellers, get all the signatures, spell out the closing date for on or before June 30, 2010, and write legibly so the IRS can read it.
  • For all tax credit qualification issues, consult a tax attorney or CPA, and contact us to get your purchase and sale agreement done by Friday.

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Home Buyer Tax Credit: What You Need For April 30 Deadline

by Rich Vetstein on April 27, 2010

in Massachusetts Real Estate Law, Offer To Purchase, Purchase and Sale Agreements, Tax Credit

As we head to the April 30th deadline for the $8,000 Home Buyer Tax Credit, here’s a quick summary of the rules.

  • Buyers must be under contract on or before April 30, 2010, and close on or before June 30, 2010. Buyers will need to attach to their 1040 tax returns a copy of the signed purchase contract and HUD-1 Settlement Statement.
  • There’s been quite a bit of debate as to whether a signed offer to purchase or signed purchase and sale agreements is sufficient for the April 30 deadline. I’ve been erring on the side of caution by recommending getting the P&S signed by Friday, but some realtors and attorneys disagree and say that a signed offer is enough. I’d like to see some formal IRS guidance here. The IRS rules require the names of all parties on the “binding contract,” and the offer typically is addressed to “owner of record.” If Realtors are going to use the offer, ensure that all parties names are legibly shown on the offer. Bottom line: consult a tax attorney or CPA on tax credit issues, and contact us to get your purchase and sale agreement done by Friday.
  • The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.
  • The new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time home buyers.” To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.
  • The new law raises the income limits for people who purchase homes after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

New Requirements

Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law:

  • Dependents are not eligible to claim the credit.
  • No credit is available if the purchase price of a home is more than $800,000.
  • A purchaser must be at least 18 years of age on the date of purchase.

For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.

A new version of Form 5405, First-Time Homebuyer Credit, is now available here. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.

Here’s an IRS produced video outlining the program.

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