Construction Law News Blog

Stimulus Act - Impact on Residential Real Estate

As part of the American Recovery and Reinvestment Act of 2009 (the “Recovery Act”) the United States Congress made some major modifications to existing legislation and enacted significant new legislation in an effort to stimulate the residential real estate market and promote energy efficiency in America’s homes. This advisory briefly highlights some of the changes in these areas, with one specific change in the First-Time Homebuyer Tax Credit aimed at reversing the decline in home prices, stemming the surge in foreclosures and promoting new home construction. These changes will have a direct and tangible impact on many residential real estate developers and home construction and related companies during these challenging times. Many of the provisions are complex and some of the details have yet to be fully provided, so it is impossible to accurately summarize the details of each item. Frost Brown Todd will be embarking upon a series of seminars to discuss the provisions of the Recovery Act in greater detail. We will be contacting you soon with information with respect to dates and locations for these seminars.

Some of these beneficial changes are:

  • Major Revisions to the First-Time Homebuyer Tax Credit Enacted in 2008:
    • Extends the termination date of this temporary credit from July 1, 2009 to December 1, 2009.
    • Increases the amount of the Credit from $7,500 to $8,000 for homes purchased between January 1 and November 30, 2009 (i.e., the closing must occur within this period).
    • Eliminates the mandatory recapture provisions that existed with the earlier version of the credit (the 2008 version requires repayment of the tax credit in subsequent tax years beginning with the 2010 tax year in amount equal to 6⅔% of the credit or $500 per year for fifteen years).
    • Eliminates the recapture of the credit if the home is sold before the expiration of the 15 year repayment period. However, under the 2009 version of the credit, recapture will still occur if the home ceases to be the principal residence of the taxpayer (through a sale or otherwise) within 3 years after the date of purchase.
    • Allows taxpayers to take the credit for a 2009 home purchase on their 2008 return thereby accelerating their refund. Taxpayers purchasing a home in 2009 who have already filed a 2008 return may amend their return to take advantage of the credit using Form 1040X. Taxpayers who have not yet filed may extend the filing deadline for their 2008 return until October 15, 2009 (provided the taxpayer files for the extensions).
    • Makes the credit available all homebuyers by eliminating the restriction on purchases financed through state and local mortgage revenue bond financing.
      • Provisions of the First-Time Homebuyer Tax Credit Which Remain Unchanged:
      • Eligible Property – applies to the purchase any single family residences (including single family detached homes, co-ops, condominium units and townhouses located within the United States).
      • Principal Residence Requirement – home purchased must be the principal residence of the taxpayer (generally defined in Section 121 of the Internal Revenue Code as residence where taxpayer lives more than 50% of the year).
      • First-Time Homebuyer Requirement – A taxpayer is considered a first-time homebuyer if such individual has had no ownership interest in a principal residence in the United States during the three-year period prior to the purchase of the home to which the credit applies.
      • Refundable Credit – those taxpayers taking the credit with a tax liability less than $8,000 will in most cases receive a refund.
      • Phase Out – Credit is phased out for those taxpayers with a Modified Adjusted Gross Income between $75,000 and $95,000 (and between $150,000 and $170,000 for joint filers).
      • No credit is allowed if the taxpayer is a non-resident alien, if the taxpayer purchased the home from a related person or if the taxpayer has taken the D.C. homebuyer credit (under Section 1400C) in any prior taxable year.
      • In order to claim this credit, eligible taxpayers must use Form 5405 which can be obtained from the IRS at www.irs.gov. Form 5405 must be attached to and filed with the taxpayer’s 1040.
      • Note: that 2008 version of the credit will still apply if the new home was purchased between April 8, 2008 and December 31, 2008. Unlike the 2009 version, this credit must be repaid (see above).

      Newly enacted legislation includes:

      • ENERGY STAR Appliances: $300 million to provide consumers with rebates for buying energy efficient ENERGY STAR products to replace old appliances.

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