First Time Home Buyer's Credit - F1, J1, L1, H1B visa taxes.
This article addresses the recently-passed First Time Home Buyer's Credit.
In an attempt to recover from the recent problems in the home-building section of the economy, Congress passed the Housing and Economic Recovery Act of 2008 that gave a $7,500 “credit” to U.S. Residents who purchased their first home in 2008. The credit was not REALLY a credit, however, but actually an interest-free loan that would be repaid over 15 years ($500 per year). It required that the buyer buy the home between 8 April 2008 and 1 July 2009 and that they own and live in the home for at least 36 months from date of purchase.
While the credit was well received by the American public, it became obvious that it was NOT having the desire effect. For this reason, Congress modified the credit in the American Recovery and Reinvestment Act of 2009. In this law, the credit was increased to $8,000, and, unlike the previous law, it was a TRUE credit with no payback provisions for purchases made in 2009. The old $7,500 “credit” (with the 15-year payback requirement) still applied for purchases made in 2008.
Under the new law, the credit applied to any purchase of a home in 2009 before 1 December 2009. The home must be used as the buyer principal residence. The $8,000 credit reduces the taxes of the buyer. If the buyer's tax liability is LESS than $8,000, the credit is fully refundable, meaning that the extra credit above the tax liability is added to the buyer's refund.
The $8,000 does NOT have to be repaid if the buyer owns and occupies the house for at least THREE years from date of purchase. Further, if the house is purchased in 2009 prior to 1 July 2009, the buyer can amend their 2008 tax return and request the $8,000 credit in that amendment. If the house purchased on or after 1 July 2009, but before 1 December 2009, the credit can be requested on the 2009 tax return.
As with any tax law, there are requirements to meet. To qualify:
That last provision is the one that is most pertinent to our clientele. If you are a non-resident or dual-status alien, you do NOT qualify for this credit. However, if you file jointly with your spouse and you both CHOOSE to be treated as resident aliens for all of 2009, you DO meet the criteria to claim this credit, just as long as you buy the house before 1 December 2009.
Given the current housing market, many persons in the U.S. on H-1, H-1B and L-1 visas will be tempted to take advantage of this situation to buy a home at discounted prices, with very favorable interest rates, in order to claim the $8,000 credit. However, you must carefully consider exactly to what you are committing yourself and what consequences you will face if you cannot meet all of the requirements.
The biggest consideration is the requirement that you must live in the house for three years from date of purchase! Jobs under the H-1 and L-1 visas, by their very nature, tend to be temporary. While it is true that many jobs last up to six years and beyond, just as many jobs will end after six months, often with little or no notice. You may be required to re-locate to another city or state within the United States, or even be required to return to your home country. If this happens, and you must sell the house within 1-to-2 years of purchase, it is likely you will NOT recover the costs you incurred when you originally purchased the house. These costs typically run between 3-to-4 percent of the cost of the house. Further, you will have to pay costs to SELL the house, which can run up to 10% of the house's sales price. Finally, because you did not own the house for at least 36 months after purchase, you will be legally obligated to return the $8,000 credit you received. While there are exceptions that allow this repayment to be forgiven, a job change or employer-mandated move is NOT one of those exceptions!
For these reasons, you must carefully consider all aspects of your home-buying decision before you go forward with your purchase.
If you have any questions, please Contact Us or post your questions in the Forum.
First Time Home Buyer's Credit for J1, F1, H1B visa taxes
This article addresses the recently-passed First Time Home Buyer's Credit.
In an attempt to recover from the recent problems in the home-building section of the economy, Congress passed the Housing and Economic Recovery Act of 2008 that gave a $7,500 “credit” to U.S. Residents who purchased their first home in 2008. The credit was not REALLY a credit, however, but actually an interest-free loan that would be repaid over 15 years ($500 per year). It required that the buyer buy the home between 8 April 2008 and 1 July 2009 and that they own and live in the home for at least 36 months from date of purchase.
While the credit was well received by the American public, it became obvious that it was NOT having the desire effect. For this reason, Congress modified the credit in the American Recovery and Reinvestment Act of 2009. In this law, the credit was increased to $8,000, and, unlike the previous law, it was a TRUE credit with no payback provisions for purchases made in 2009. The old $7,500 “credit” (with the 15-year payback requirement) still applied for purchases made in 2008.
Under the new law, the credit applied to any purchase of a home in 2009 before 1 December 2009. The home must be used as the buyer principal residence. The $8,000 credit reduces the taxes of the buyer. If the buyer's tax liability is LESS than $8,000, the credit is fully refundable, meaning that the extra credit above the tax liability is added to the buyer's refund.
The $8,000 does NOT have to be repaid if the buyer owns and occupies the house for at least THREE years from date of purchase. Further, if the house is purchased in 2009 prior to 1 July 2009, the buyer can amend their 2008 tax return and request the $8,000 credit in that amendment. If the house purchased on or after 1 July 2009, but before 1 December 2009, the credit can be requested on the 2009 tax return.
As with any tax law, there are requirements to meet. To qualify:
· your income cannot exceed $95,000 if you are single or $170,000 if you are married.
· You cannot be eligible to claim the District of Columbia's First Time home buyer credit for 2008 or any prior year.
· The home's financing cannot come from tax-exempt mortgage revenue bonds.
· The home MUST be located inside one of the fifty states in the U.S.
· The home cannot be inherited or received as a gift.
· You cannot buy the home from a related person who is your spouse, ancestor (parent, grand-parent, great-grandparent, etc.) or lineal descendant (children, grandchildren, etc. Note, however, that you CAN purchase the house from a sibling or from an aunt, uncle or cousin.
· You cannot buy the home from a corporation or partnership in which you have a controlling interest.
· Finally, you must be a citizen or resident alien of the U.S.
That last provision is the one that is most pertinent to our clientele. If you are a non-resident or dual-status alien, you do NOT qualify for this credit. However, if you file jointly with your spouse and you both CHOOSE to be treated as resident aliens for all of 2009, you DO meet the criteria to claim this credit, just as long as you buy the house before 1 December 2009.
Given the current housing market, many persons in the U.S. on H-1, H-1B and L-1 visas will be tempted to take advantage of this situation to buy a home at discounted prices, with very favorable interest rates, in order to claim the $8,000 credit. However, you must carefully consider exactly to what you are committing yourself and what consequences you will face if you cannot meet all of the requirements.
The biggest consideration is the requirement that you must live in the house for three years from date of purchase! Jobs under the H-1 and L-1 visas, by their very nature, tend to be temporary. While it is true that many jobs last up to six years and beyond, just as many jobs will end after six months, often with little or no notice. You may be required to re-locate to another city or state within the United States, or even be required to return to your home country. If this happens, and you must sell the house within 1-to-2 years of purchase, it is likely you will NOT recover the costs you incurred when you originally purchased the house. These costs typically run between 3-to-4 percent of the cost of the house. Further, you will have to pay costs to SELL the house, which can run up to 10% of the house's sales price. Finally, because you did not own the house for at least 36 months after purchase, you will be legally obligated to return the $8,000 credit you received. While there are exceptions that allow this repayment to be forgiven, a job change or employer-mandated move is NOT one of those exceptions!
For these reasons, you must carefully consider all aspects of your home-buying decision before you go forward with your purchase.
If you have any questions, please Contact Us or Post your questions in the Forum.
While the E-3 visa is similar to the H-1 and H-1B visa, there ARE differences. First, the E-3 visa is also issued to the dependents (spouse and children) in the form of the E-3D visa, instead of a separate visa type for the dependents (H-4 for H-1/H-1B visa holders or L-2 for L-1 visa holders). Second, E-3 spouses are entitled to work in the United States and may apply for an Employment Authorization Document (Form I-765) through U.S. Citizenship and Immigration Service (USCIS). Third, as noted above, it can be extended indefinitely.
The E-3 visa holder who has been in the United States for the entire tax year (in other words, you entered the U.S. on your E-3 visa prior to January 1) is considered a resident alien and will file Form 1040, 1040A or 1040EZ. You will pay taxes at the state and federal level at the same tax rates as U.S. Citizens. Further, you are liable to pay Social Security and Medicare taxes from the day you start working under the E-3 visa. You can claim all the exemptions and credits which are available to U.S. citizens, to include filing jointly with your spouse (even if he/she is living in another country) and claiming the exemptions for your children (assuming the children lived with you in the U.S. for at least part of the year). To file jointly with your spouse and/or to claim the exemptions for your children, you must either apply for and receive valid Social Security numbers for them or request Individual Tax Identification Numbers by filing a Form W-7 for your spouse and each child when you file your first tax return.
The E-3 visa holder who files as a resident alien also needs to remember that ALL of his/her worldwide income is subject to U.S. taxes, not just U.S.-based income. While these taxes can be offset by the Foreign Tax Credit (for taxes paid to another country) and the Foreign Income Exclusion, the visa holder should not fail to report income from his home country
Those who enter the United States before July 3rd during the tax year will meet the Substantial Presence Test (which requires presence in the U.S, for at least 183 days) and are considered dual-status aliens and must file a dual-status tax return, which, for them, consists of a Form 1040 with a Form 1040NR as an attachment. In most cases, the taxpayer cannot claim the Standard Deduction, cannot file jointly with her/her spouse (though he can claim his spouse and children as dependents), cannot claim the Head of Household filing status, and cannot claim either the Earned Income Credit, the education credits or the credit for the elderly or disabled. As you may have guessed, the dual-status return is somewhat complicated and probably should NOT be filed without professional help.
Those who enter the United States after July 2nd during the tax year cannot meet the Substantial Presence Test and may file as a non-resident alien, but also MAY file a dual-status tax return under the First Year Choice. The First Year Choice option requires that you be in the United States for at least 31 days in a row in 2009 AND be present in the United States for at least 75% of the number of days from the beginning of your 31 consecutive day period and ending with the last day of 2009. You will also have to file a statement with your return concerning the First Year Choice. See IRS Pub 519 for details. You must wait until you meet the Substantial Presence Test for 2010 before you can file, which means you might have to wait until early June of 2010 before you can file, but the benefits of filing dual-status instead of filing as a non-resident alien may be worth it.
Finally, if you are married and your wife is with you on a E-3D visa, you can both choose to be treated as resident aliens, regardless of whether you entered the United States before or after July 3rd. If you arrived before July 3rd, you are already dual-status. If you arrived after July 2nd, you would have to use the First Year Choice option (and file the First Year Choice statement), then meet the requirements for choosing to file as a resident alien as well. These requirements are:
The results/consequences of this choice are as follows:
Keeping records will help you avoid headaches at tax time. Good recordkeeping will help you remember the various transactions you made during the year, which in turn may make filing your return a less taxing experience.
Records help you document the deductions you’ve claimed on your return. You’ll need this documentation should the IRS select your return for examination. Normally, tax records should be kept for three years, but some documents – such as records relating to a home purchase or sale, stock transactions, IRA and business or rental property – should be kept longer.
In most cases, the IRS does not require you to keep records in any special manner. Generally speaking, however, you should keep any and all documents that may have an impact on your federal tax return:
Good recordkeeping throughout the year saves you time and effort at tax time when organizing and completing your return. If you hire a paid professional to complete your return, the records you have kept will assist the preparer in quickly and accurately completing your return.
IRS Publication 552, Recordkeeping for Individuals
If you have any questions, please Contact Us or Post your questions in the Forum.
$8,000 Home Buyer Tax Credit at a Glance
The information on this page pertains to the American Recovery and Reinvestment Act of 2009. First-time home buyers who purchased a principal residence on or after April 9, 2008 and before January 1, 2009 may qualify for a $7,500 tax credit. Click here for more information.
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