	Background and Introduction

Homebuyers who were unable to close on their purchases by the June 30, 2010, deadline imposed by the Worker, Homeownership, and Business Assistance Act of 2009 ( P.L. The American Recovery and Reinvestment Act of 2009 (ARRA) modified the first-time homebuyer tax credit for those taxpayers purchasing principal residences in 2009, increasing the amount of the credit, extending the eligible purchase dates through November 30, 2009, and generally eliminating the repayment provision for purchases after 2008. In addition to extending the eligible dates of purchase and allowing an additional two months in which to complete the purchase, the Worker, Homeownership, and Business Assistance Act of 2009 expanded the statutory definition of "first-time homebuyer" by introducing an exception for those who have owned and used the same residence as their principal residence for any period of five consecutive years during the eight-year period that ends on the date they purchase a subsequent property to use as their principal residence. Certain members of the military, foreign service, and intelligence communities received special consideration under P.L. Those who served on qualified official extended duty outside the United States for a period of at least 90 days during the period beginning January 1, 2009, and ending April 30, 2010, may qualify for the credit if they purchase a residence before May 1, 2011, or have entered into a binding contract by that date; if the contract calls for closing before July 1, 2011; and if they close before July 1, 2011. The recent three-month extension for closing provided by P.L. For purchases after November 6, 2009, qualified purchasers must be at least 18 years old and cannot be eligible to be claimed as dependents on any other taxpayer's return. Even if a property is used as the taxpayer's principal residence when it is purchased, it will not qualify for the credit if the taxpayer ceases to use it as the principal residence before the end of the tax year in which the residence was purchased. 111-198 enacted an exception to the first exception noted above for P.L. 111-92 . 111-92 applies only to property purchased by "long-time residents." However, the credit is limited to $6,500 for long-time residents who qualify for the credit. For all other taxpayers buying before November 7, 2009, the threshold is $75,000. Effective for purchases on or after November 7, 2009, the thresholds have been raised to $225,000 for joint filers and $125,000 for all others. Since 10% of the purchase price is more than $8,000, their credit is limited to $8,000. The credit may be claimed on the tax return for the tax year in which the property is purchased. In mid-2009, the FHA announced a program that would allow homebuyers to "sell" their tax credits and thereby effectively receive the money prior to the purchase so that it could be used toward the down payment, prepaid expenses, and closing costs. Those purchasing their residence in 2008 would not qualify for the credit if they financed their new residence with the proceeds of a tax-exempt mortgage revenue bond or if they (or their spouses) who also qualified for the first-time homebuyer credit in the District of Columbia in the current taxable year or in any prior taxable year. P.L. Effective for all tax returns for tax years ending after November 6, 2009, as a matter of procedure, taxpayers will not be eligible for the credit unless their tax return includes "a properly executed copy of the settlement statement used to complete such purchase" as an attachment to the return. In contrast, for credits based on property purchased in 2008, the entire amount of the allowed first-time homebuyer credit must be repaid even if the taxpayer continues to live in the property as a principal residence for 30 years. However, there is no general section of the Internal Revenue Code that requires this basis reduction when claiming a credit.
Homebuyers who were unable to close on their properties by the June 30, 2010, deadline imposed by the Worker, Homeownership, and Business Assistance Act of 2009 (P.L. 111-92) may still be able to receive the first-time homebuyer tax credit if they close before October 1, 2010, so long as they had a binding contract for the property before May 1, 2010, and that contract required closing before July 1, 2010, and they meet all other requirements for the credit. P.L. 111-198, enacted July 2, 2010, and effective for closings after June 30, 2010, provides the additional time for closing. It makes no other changes to the credit—§ 36 of the Internal Revenue Code.
The first-time homebuyer credit was established in 2008 by P.L. 110-289. It was modified and extended by P.L. 111-5 in February 2009. It was further extended by P.L. 111-92 in November 2009, and expanded to include some homebuyers who did not qualify under the credit's original definition of a first-time homebuyer. These homebuyers—called "long-time residents"—must have owned and lived in their principal residence for at least five consecutive years during the eight-year period that ends on the date they purchase a subsequent property to use as their principal residence.
The credit is based on 10% of the purchase price of property that is used as the purchaser's principal residence. For purchases before 2009, it is limited to $7,500, which generally must be repaid over a 15-year period that begins with the second tax year following the tax year for the year of purchase. For purchases after 2008, the credit is generally limited to $8,000, but that limit is reduced to $6,500 for "long-time residents." Repayment is not required unless taxpayers cease to use the property as their principal residences within three years of the date of purchase.
Regardless of the year of purchase, the credit may be reduced or eliminated for those with incomes over a threshold amount. For purchases before November 7, 2009, the threshold amount is $150,000 for joint filers and $75,000 for all others. For purchases after November 6, 2009, the threshold is increased to $225,000 for joint filers and $125,000 for others.
There are some limitations on qualifying for the credit. No credit is allowed for property (1) located outside the United States; (2) inherited; (3) purchased from a close relative; or (4) purchased by a non-resident alien. Property purchased in 2008 will not qualify if financed with the proceeds of tax-exempt mortgage revenue bonds, or if the purchaser qualified for the first-time homebuyer credit in the District of Columbia in 2008 or earlier. Certain additional restrictions apply to purchases made after November 6, 2009: (1) residences costing more than $800,000 will not qualify; (2) purchasers must be at least 18 years old; and (3) purchasers cannot be eligible to be claimed as a dependent on another taxpayer's tax return.
In mid-2009, the FHA authorized state housing finance agencies and others to arrange advances of the credit to taxpayers, effectively allowing taxpayers to borrow against the credit if funds were used for down payments, prepaid expenses, or closing costs. The purchase must have been completed before the credit is claimed on a tax return, but it can be claimed on an amended return for the tax year prior to the year of purchase. Generally credits claimed on tax returns for 2009 and later must be documented with a copy of the settlement statement attached to the return.
There are special provisions regarding both the eligible purchase dates and the repayment provisions for members of the military, foreign service, and intelligence communities.