For many in the Iowa City Real Estate Market there is a terrific opportunity to take advantage of the First-Time Homebuyer Tax Credit. This first-time homebuyer credit provided by Section 36 of the Internal Revenue Code was recently enhanced by the American Recovery and
Reinvestment Act of 2009. For those who anticipate holding their property beyond 36 months and who have not owned real estate in the past three years could receive a tax credit of $8,000. Therefore, to understand and be able to take advantage of this opportunity can be very valuable for you and/or your kids.

I asked Bradley & Riley Attorney Michael J. Pugh to further explain this opportunity. Mike recently published a white paper on this subject with fellow attorney Jeremy Hagan.                        

 Michael J. Pugh  Bio
 Jeremy B.P. Hagan  Bio

We thought it would be useful to provide you with some information regarding the First-Time
Homebuyer Tax Credit (the "Tax Credit"). The first-time homebuyer credit provided by Section
36 of the Internal Revenue Code was recently enhanced by the American Recovery and
Reinvestment Act of 2009. The Tax Credit is available for purchases of a principal residence on
or after April 9th, 2008, and before December 1, 2009.

As a preliminary matter, it is important to distinguish the tax credit available under this program
from a tax deduction. A tax deduction reduces tax amounts owed by a taxpayer by decreasing
income. By contrast, a tax credit is a dollar for dollar reduction in the amount of tax owed. This
is a more valuable benefit and functions as though applying a gift card to reduce a tax liability.
In addition, the Section 36 tax is a "refundable credit." Normally, a tax credit stops once a
taxpayer reaches zero tax liability. However, a refundable tax credit can cause tax liability to
cross over zero, resulting in a refund. As a result, even if a taxpayer owes no tax at all, or had no
income, a refundable tax credit might result in receiving a tax refund from the government. For
example, suppose a qualifying homebuyer purchases a principal residence in 2009 and claims a
Tax Credit in the amount of $8,000. Further suppose that the taxpayer's total tax liability for the
calendar year is $6,000. The Tax Credit reduces that taxpayer's tax liability to zero. In addition,
the taxpayer will receive a $2,000 tax refund.

Dollar & Income Limitation

In general, the Tax Credit is equal to 10 percent of the purchase price of a qualified residence.
However, the Tax Credit is subject to two distinct limitations that will often reduce the total
credit available. First, the credit cannot exceed $8,000 for individual purchasers or married
couples filing jointly ($4,000 for married individuals filing separately). Second, the Tax Credit
is reduced for individual taxpayers earning more than $75,000 per year and is completely
phased-out for individuals earning $95,000 or more per year. For married couples filing joint
federal income tax returns, the Tax Credit is reduced beginning at $150,000 and is completely
eliminated at $170,000 of annual income.

Who qualifies as a "first-time homebuyer"?

To be eligible for the Tax Credit, a "first-time homebuyer" is any individual who had no present
ownership interest in a principal residence during the three-year period ending on the date of the
purchase of the principal residence to which the Tax Credit applies. For married couples, neither
the individual nor spouse may have had an ownership interest in a principal residence during the
three-year period. A consequence of this applicable definition is that "first-time homebuyer" is
actually a misnomer. An individual who previously owned a home may qualify for the credit if
such ownership interest ended at least three years prior to the qualifying purchase.
{00697134.DOC}

What is the meaning of "principal residence"?

The Tax Credit applies only to the purchase of a principal residence in the United States.
Principal residence is determined based on particular facts and circumstances but generally
means the property that the taxpayer uses a majority of the time during the year. A house-trailer,
cooperative apartment, or condominium may qualify as a principal residence.

What qualifies as a "purchase"?

The Tax Credit is only available for the purchase price of the residence. The term "purchase" is
defined to mean any acquisition other than: (1) an acquisition from a person related to the
purchaser; (2) as part of a non-recognition transaction; or (3) by gift or inheritance. A residence
that is custom built for a taxpayer is treated as purchased by the taxpayer on the date the taxpayer
first occupies the home. For purposes of the Tax Credit, a related person includes a corporation
in which an individual owns more than 50% of the value of the stock, a partnership in which the
individual directly or indirectly owns 50% or more of the capital or profits interest, or an
individual's spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children,
grandchildren, etc.). Notable exclusions from the definition of a related person is a sibling or an
in-law (if a married couple filing separately). Thus, a purchase that would otherwise qualify for
the Tax Credit will not be disqualified because the property is acquired from a brother or sister or
from an in-law (if a married couple filing separately). In addition, a Federal statute provides that
the word "spouse" refers only to a person of the opposite sex who is a husband or wife. Thus, a
same-sex domestic partner is not a spouse of an otherwise qualified purchaser for purposes of the
Internal Revenue Code and will not be a "related" person for purposes of disqualifying the Tax
Credit.

"Purchase price" means the principal residence's adjusted basis on the date of purchase and
therefore includes legal fees, title search costs, revenue stamps, and recording fees. Thus,
subject to the $8,000 ceiling, the Tax Credit may include 10% of the amount of these soft costs.
Potential for tax credit recapture

Prior to the recent change in the law, the Tax Credit was recaptured ratably over fifteen years,
with no interest charge, beginning with the second tax year after the tax year in which the home
was purchased. In other words, the Tax Credit was the equivalent of a long-term interest-free
loan from the government. The recent change in the law waives the recapture of the credit for
qualifying home purchases after December 31, 2008 and prior to December 1, 2009. However,
if the taxpayer disposes of the home or the home otherwise ceases to be the principal residence
of the taxpayer within 36 months from the date of purchase, the prior rules for recapture of the
credit apply.

NOTICE: Internal Revenue Service Regulations require that certain types of written advice include a disclaimer. To the extent that the preceding communication contains tax advice relating to a federal tax issue, unless expressly stated otherwise, the advice is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer for the purpose of avoiding federal tax penalties, and was not written to support the promotion or marketing of any transaction or matter discussed herein.

INFORMATION IN THIS REPORT IS THE PERSONAL VIEW OF THE WRITER, NOT NECESSARILY REFLECTING THE VIEW OF RESOURCES PLANNING GROUP, INC. IT IS FOR YOUR OWN PERSONAL USE. THE WRITER DOES NOT REPRESENT THAT IT IS ACCURATE OR COMPLETE. NOTHING IS GUARANTEED. ALTHOUGH THE INFORMATION INCLUDED IN THIS REPORT HAS BEEN OBTAINED FROM SOURCES RESOURCES PLANNING GROUP BELIEVES TO BE RELIABLE; WE DO NOT GUARANTEE ITS ACCURACY. ALL OPINIONS AND ESTIMATES INCLUDED IN THIS REPORT CONSTITUE THE JUDGEMENTS AS OF THE DATES INDICATED AND ARE SUBJECT TO CHANGE WITHOUT NOTICE. THIS REPORT IS FOR INFORMATION PURPOSES ONLY AND IS NOT INTENDED AS AN OFFER OR SOLICITATION WITH RESPECT TO THE PURCHASE OR SALE OF ANY SECURITY.