Tax Edge

The IRS has decided to be generous with its interpretation of the expanded new homebuyer's credit enacted as part of the new stimulus bill. People who qualify for the credit and who buy a new home this year before December 1 will be able to knock as much as $8,000 off their 2008 taxes, if they choose.

The credit for new homebuyers first came to life last year, providing a credit of 10 percent of the purchase price of a home, up to $7,500, for purchases made between April 9, 2008 and June 30, 2009. The law allowed anyone purchasing a home in 2009 the option of treating the purchase as having taken place on December 31, 2008, thus permitting them to use the credit to reduce either their 2008 or 2009 tax liability.

"One important restriction on this credit was that it was really a no-interest loan," said Mark Luscombe, JD, LLM, CPA and TaxEdge principal federal tax analyst. TaxEdge is a Wolters Kluwer business and a leading provider of tax, accounting and audit information, software and services. "You could use it to reduce your taxes now, but you had to repay it on your income tax over 15 years, beginning two years after the purchase."

Stimulus Bill Liberalized Credit

The stimulus bill liberalized the credit in several ways, extending the cutoff date for qualifying purchases to November 30, 2009, increasing the maximum credit amount to $8,000 and, most significantly, eliminating the repayment requirement as long as the purchaser stayed in the home for at least three years.

"The one oddity in the way the law was written had to do with the provision that you could count a 2009 purchase as having taken place in 2008," Luscombe said. "Under a strict reading of the law, if you did that, you still didn't have to repay the credit and you could take it against your 2008 taxes, but it seemed the maximum allowable credit would be reduced to the old, $7,500 amount."

Now, the IRS has announced that it will allow the new, $8,000 amount to be used, even when a 2009 purchase is treated as having taken place in 2008.

"This doesn't help people who actually bought homes in the 2008 qualifying period, and who are limited to a $7,500 credit that must be repaid, but it looks as though only further legislation can help them," Luscombe said.

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Posted March 12, 2009.