What’s New for 2009

First Time Homebuyer Credit

Uncle Sam just keeps making the first-time homebuyer credit better and better. When first enacted in 2008, the credit was 10 percent of the purchase price of the qualifying residence up to a maximum of $7500. The credit applied only to homes purchased prior to July 1, 2009. In the original legislation, taxpayers were required to replay the credit over a 15-year period, which ultimately made this credit no more than a tax-free loan.

In February 2009, Uncle Sam sweetened the deal by increasing the maximum credit to $8000, extending the cut-off date to November 30, 2009, and eliminating the requirement to repay the credit. Eliminating the requirement to pay back the credit makes this tax break a red-hot deal.

In November of 2009, Uncle Sam improved the tax credit once more by expanding the definition of who qualifies as a first-time homebuyer and extending the time to purchase your home through April 30, 2010. For homes acquired after November 6, 2009, credit is no longer restricted to first-time purchases. Under the new rules, long-time residents may be eligible for a reduced credit. To qualify, you must have lived in your old residence for any five-consecutive year period during the last eight years, ending on the date your new residence is purchased. The credit for long-term homebuyers is 10 percent of the qualifying home’s purchase price up to a maximum credit of $6500.

New Educational Credit

Uncle Sam is willing to help pay for your college with the new American Opportunity Credit. The new education credit modifies and expands the Hope credit for tax years 2009 and 2010.

The credit provides undergraduates a dollar for dollar reduction of taxes, up to $2500 of the first $4000 of qualifying educational expenses. Qualified expenses have been expanded from the Hope credit rules. In addition to tuition, they include expenditures for required course materials such as books, supplies, and equipment needed for a course  whether or not the materials are purchased from the school.

Unlike the Hope credit, the American Opportunity Credit can be used for all four college years and if refundable up to $1000. You can receive a refund of up to forty percent of the credit, even though you owe no tax.

The full credit is available for taxpayers with modified adjusted gross income of $80,000 or less, $160,000 or less for married couples filing jointly. The credit is phased out for taxpayers with incomes above these levels.