Questions for the Tax Lady: July 19th, 2010

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: I saw in the news that the homebuyers credit was extended. What is the new cutoff to qualify for the credit?

The deadline for closing on home purchases has been extended from June 30 to Sept. 30, 2010. This means that in order to qualify for the credit, the purchase of your home must be completed before September 30^th, 2010. However, as the buyer, you are still required to have entered need to enter into a binding contract by April 30, 2010.

Question #2: Will I have to pay a tanning tax on lotions and supplies I purchase at my local tanning salon?

No. According to the IRS the tax does not apply to spray tans or topical creams and lotions. It is only levied on the actual indoor tanning service.

Extending the Homebuyer’s Credit… Again?

The Homebuyer’s Credit expired on April 30, 2010, but a handful of politicians are working to reinstate it, fearing an extended real estate slump. While Harry Reid proposes extending the closing deadline on the most expired credit (all pending deals must close before June 30 to be eligible for the credit) to September 30, Ron Paul is proposing we make the credit permanent.

Critics argue that the credit was wildly expensive for taxpayers as a whole, and does little to stimulate real estate sales. Many say that those who took advantage of the credit would have purchased a home anyway, and the credit simply made them accelerate their purchase.

On the other hand, following the expiration of the credit, many real estate experts fear that the housing market will slump, causing a “recession double dip.” Of course, homeowners who claimed the credit were thrilled to receive up to $8,000 in free money from Uncle Sam. Add in that this in an election year; every politician is looking for ways to curry favor with voters, and this tax credit was very popular with taxpayers.

Read more about Reid’s proposal here, and see more about Paul’s proposal here.

Expanded Tax Break Available for 2009 First-Time Homebuyers

According to their newest press release, the IRS has announced today that taxpayers who qualify for the first-time homebuyer credit and purchase a home this year before Dec. 1 have a special option available for claiming the tax credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

Qualifying taxpayers who buy a home this year before Dec. 1 can get up to $8,000, or $4,000 for married filing separately.

“For first-time homebuyers this year, this special feature can put money in their pockets right now rather than waiting another year to claim the tax credit," said IRS Commissioner Doug Shulman. “This important change gives qualifying homebuyers cash they do not have to pay back.”

The IRS has posted a revised version of Form 5405, First-Time Homebuyer Credit, on IRS.gov. The revised form incorporates provisions from the American Recovery and Reinvestment Act of 2009. The instructions to the revised Form 5405 provide additional information on who can and cannot claim the credit, income limitations and repayment of the credit.

This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.

The IRS also alerted taxpayers that the new law does not affect people who purchased a home after April 8, 2008, and on or before Dec. 31, 2008. For these taxpayers who are claiming the credit on their 2008 tax returns, the maximum credit remains 10 percent of the purchase price, up to $7,500, or $3,750 for married individuals filing separately. In addition, the credit for these 2008 purchases must be repaid in 15 equal installments over 15 years, beginning with the 2010 tax year.

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