Created on July 1, 2009 - 2:00pm

Equus’ Chris Munzke, CPA CRP discusses the impact of relocation on the 2009 First-Time Homebuyer Credit.

For homes purchased in 2008, the First-Time Homebuyer Credit operates much like an interest-free loan.  Generally, the credit needs to be repaid over a 15-year period.  Accordingly, there was little reason to take the First-Time Homebuyer Credit into consideration when calculating 2008 grossup amounts.

However, for homes purchased in 2009, one must repay the credit only if the home ceases to be the main home within the 36-month period beginning on the date of purchase.  The Federal government’s enhancement to the First-Time Homebuyer Credit, combined with taxable relocation costs, could have an impact on a relocated employee’s 2009 tax returns.  This is due to the fact that the amount of the First-Time Homebuyer Credit begins to phase-out when modified adjusted gross income (MAGI) exceeds $75,000 ($150,000 if married filing jointly).  Accordingly, since moving expenses can significantly increase an employee’s MAGI, their income could exceed the phase-out threshold due to the inclusion of moving expenses in their MAGI when they may have received the full (or a larger portion of) the benefit had they not moved.

In general, a taxpayer can claim the credit if s/he is a first-time homebuyer.  A taxpayer is considered a first-time homebuyer if:

• S/He purchased the main home located in the United States after April 8, 2008, and before December 1, 2009
• The taxpayer (and spouse if married) did not own any other main home during the 3-year period ending on the date of purchase.

Generally, the credit is the smaller of:

• $8,000 ($7,500 if the home was purchased in 2008), but only half of that amount if married filing separately, or
• 10% of the purchase price of the home.

A taxpayer is allowed the full amount of the credit if his/her MAGI is $75,000 or less ($150,000 or less if married filing jointly).  The phase-out of the credit begins when one’s MAGI exceeds $75,000 ($150,000 if married filing jointly).  The credit is completely eliminated when the taxpayer’s MAGI reaches $95,000 ($170,000 if married filing jointly).

As a result, the inclusion of moving expenses in the employee’s MAGI could potentially cause the loss of a portion, if not all, of the $8,000 credit!  Furthermore, if the employer chooses to grossup the entire loss of the credit, an additional grossup amount (which could be 50% or more of the repayment amount) would significantly increase the cost of the reimbursement for the employer!

Due to the potentially significant cost increase for 2009 grossup payments, Equus recommends that employers review any transferee claims regarding loss of this credit due to relocation on a case-by-case basis.

About Equus Software Founded in 1999, Equus offers software solutions for all aspects of workforce mobility - from U.S. domestic tax gross-up and relocation operations to comprehensive international assignment management.  Equus is the undisputed leader in corporate mobility software, with over 100,000 employee relocations entrusted to Equus' software products each year.  Software innovation and unmatched customer support have made Equus the intelligent move for employee relocation and assignment management worldwide. 

CONTACT:
Chris Munzke, CPA CRP
Equus Software
(303) 292-4200
CMunzke@equusoft.com
www.equusoft.com
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