$7500 Homebuyer Credit

[OtisMozzetti]

Information has reached me stating that the credit for new homebuyers is $7500 and is REFUNDABLE (unlike what I entered into a posting about one week ago). Weirdly, the credit has to be "recaptured" (paid back in cash, not as taxable income) over a 15 year period, i.e. $500 per year starting in 2010 in most cases, EVEN IF THE TAXPAYER CONTINUES TO LIVE IN THE NEWLY-PURCHASED HOME.

So, this new credit boils down to saying that the Federal Government will LOAN you some money, possibly up to $7500, for a few years to aid in your purchase of a new home.

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The new property tax deduction for those taking a standard deduction is simply a one-shot, single-year way to get around the usual problem that homebuyers who buy late during the year seldom see much benefit, above and beyond the standard deduction, from their home ownership deductions (property tax and mortgage interest).

[solomon]

Here is the Joint Committee's Technical Explanation of the Act.

http://www.house.gov/jct/x-63-08.pdf

[Snaggletooth]

Questions

At the risk of admitting I have not taken the time to read all of Solomon's link, I have a couple questions for those who may know:

1. Is the entire remaining refundable credit recaptured if the homeowner sells the home they used the credit to purchase? Example, after 8 years, and repaying $4000 of the tax, if they sell do they immediately owe $3500 in the year of sale when they file their tax return?

2. Is the "tax debt" cancelled under any circumstances? (i.e. death, etc.)

[gbroiles]

At the risk of admitting I have not taken the time to read all of Solomon's link, I have a couple questions for those who may know:

1. Is the entire remaining refundable credit recaptured if the homeowner sells the home they used the credit to purchase? Example, after 8 years, and repaying $4000 of the tax, if they sell do they immediately owe $3500 in the year of sale when they file their tax return?

2. Is the "tax debt" cancelled under any circumstances? (i.e. death, etc.)

The remaining unrepaid credit is added to the tax due in the year that the home is sold or ceases to be the taxpayer's primary residence.

There is no recapture after death of the taxpayer.

See p. 26 of the technical explanation for more discussion.

[JoshinNC]

So now the gubment is essentially

lending money to homeowners to make their down payments (at 0% interest)? What a CROCK!!! I'm calling my congressman this morning (if I don't see him at the local Bojangles first).

This is pure BS!!!

[jimmcg]

lending money to homeowners to make their down payments (at 0% interest)? What a CROCK!!! I'm calling my congressman this morning (if I don't see him at the local Bojangles first).

This is pure BS!!!

Josh, just keep repeating to yourself "The government is here to help me."

[JoshinNC]

Like the rest of those

mindless zombies at the Obama concerts (oops, I meant "campaign events").

[JohnH]

I'm guessing that our Congresspersons will somehow use the $7,500 interest-free loan to new homebuyers as one of their excuses to again begin taxing gains on sales of residences at some point in the future. Something along the lines of sharing in the gains when the government provided part of the down payment. And I'd be willing to bet that the new rules will be even more confiscatory than the old ones.

Never mind the fact that only a relatively small number of homeowners will benefit from the $7,500 giveaway - facts are just an inconvenient obstacle when your objective is to raise taxes. When you give a bunch of politicians the right to take from one and give to someone else, there's no limit to the lengths they will go in carrying out their thieving purposes as long as it buys them a few votes.

[CinSee]

They have changed the rules on sale of personal residence exclusion. Did you read that part?

[jimmcg]

They have changed the rules on sale of personal residence exclusion. Did you read that part?

Yep, adjustment of gross income exclusion based on periods of "non qualified use." You are not supposed to notice that one. They are trying to slip that one in the "back door."

[JohnH]

I read over it, and didn't see any broad application. Even the explanations & examples are a little confusing. However, the fact that they are tinkering with the exclusion under the revenue offset section would indicate to me that this is the camel's head in the tent.

[JoshinNC]

Better tell the house flippers

Yep, adjustment of gross income exclusion based on periods of "non qualified use." You are not supposed to notice that one. They are trying to slip that one in the "back door."

That is one of their bread and butter tricks. They'll own a property, rent it out for a little while, fix it up, live in it for 2 years, sell it and exclude all the gain.

If I read this right than they would have to determine how much of the time they had the property as rental property during the last 5 years and exclude from exclusion (what a mouthful) that amount of the gain.

Ex: I buy a house 1/1/09 for $100,000 (I'm single in this example). I rent the house from 1/1/09 to 12/31/10 (24 months). I took $7272.73 in deprecition during this time period. I then spend 6 months fixing up the house (it's neither rental nor personal residence at that time). I spend $50,000 on the fix up. So now my adjusted basis is $142,727.27 (100,000 - 7272.73 + 50,000). I move in on 7/1/11 and sell on 7/1/13 (24 months later) for $392,737.27 ($250,000 gain over adjusted basis). Under current (now previous) law I could exclude the entire $250,000 from income because the property was my primary residence for 24 of the last 60 months. Now, under this new law, I have to take 24 months of "non-qualified" use (rental) and divide that into the total 60 months, so 40% of my gain, or $100,000, is not excludable? Do I have this right? Do the six months when the property was neither rental nor primary residence count as "non-qualified" use, thus making my non-excludable (is that a word) percentage 50% of the gain?

Oh well, I guess I'll start charging $500 to do a home sale now cause it's gonna take the better part of a day to figure out the "non-excludable" use part and the amount of the "credit" (ha!) that must be paid back.

[CinSee]

They way I read it the 6 months you was fixing it up is non use time also so you will have 30 months of non use and 24 months of use. That would make 55.55% of your gain ineligible for the exclusion.

[outwest]

Thinking through this..

I wonder if they are taking aim at this stategy:

Taxpayer has a commercial building for 20 years. TP exchanges via Sec 1031 for a house and rents it for 2 years to qualify the 1031 exchange. (I know is not official, but this seems to be a consensus time period) In year 3 they convert to the principal residence for another 2 years to qualify for Sec 121.

Under prior law, they could potentially exclude a lot of gain that may have come from the original commercial building. Under the new law, it looks like that at least some of that gain would be taxed.

Hmm... if holding period carries over in the 1031 exchange 20/24 is 83% of gain would be taxed?

[CinSee]

Periods of non use as a personal use prior to 1/1/09 are not taken into consideration.