What you should know about the First-Time Homebuyer Tax Credit Updated October 29th, 2009 8,000 First-time Home Buyer Tax Credit at a Glance The $8,000 tax credit is for first-time home buyers only. *For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase. *The tax credit does not have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase. *The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000. *The tax credit applies only to homes priced at $800,000 or less. *The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify. *For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly. *For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit. The $6,500 Move-Up / Repeat Home Buyer Tax Credit at a Glance *To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years. *The tax credit does not have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase. *The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. *The tax credit applies only to homes priced at $800,000 or less. *The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies provided it is completed by June 30, 2010. Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit. Source: www.federalhousingtaxcredit.com Details on the tax credit include: The temporary credit is only available for home purchases made from Jan. 1, ,2009, through Nov. 30, 2009, and is equal to 10% of the cost of the home, up to a maximum of $8,000. (for example, a home purchased for $80,000 or more would qualify for the full $8,000 credit while a $70,000 home would only qualify for a 10% or $7,000) Buyers claim the creidt on their federal tax return to reduce their tax liability. If the credit is more than the taxes owed, the buyer will get a refund check for the taxes owed plus the difference. Only first-time homebuyers can take advantage of the tax credit. A first-time buyer is defined under the tax credit as an individual who has not owned a home in the past three years. Eligible properties include anything that will be used a a principal single-family residence- including condos and townhouses. There are income guidelines on the credit. Individuals with an adjusted gross income up to $75,000 (or $150,000 if filing jointly) are eligible for the full tax credit. The credit is phased down for those earning more and is not available for those with an income above $95,000 ($170,000 if filing jointly) The new tax credit does not have to be repaid if the buyer stays in the home at least 3 years. If the home is sold before that, the entire amount of the credit is recaptured on the sale. Understanding the homebuyer tax credit THE PROCESS Q. How do I apply for the credit? A. All eligible purchasers simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form 5405 that will be attached to the 1040, Form 5405 can be found at www.irs.gov Q. Can I use it as part of my downpayment? A. No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the purchase and settlement phase of the transaction. However, Florida recently adopted a $30.1 million budget for its Florida Homebuyer Opportunity Program, which will help with downpayment assistance for those who quailfy for the federal $8,000 first-time homebuyer tax credit. MAKING IT WORK Q. What if I can't settle before Dec. 1st? A. The credit is available for purchases before Dec 1,2009. A home is considered as "purchased" when all events have occurred that transfer the title from the seller to the new purchaser. Closing must occur before Dec, 1, 2009 to be eligible. Q. Do I have to wait until next year to get the credit? A. Eligible homebuyers who make their purchase between Jan 1, 2009 amd Dec. 1, 2009 can treat the purchase as if it had occurred on Dec. 31, 2008. Thus, they can claim the credit on their 2008 tax return that was due on April 15,2009. Filing options include: If you received an extension on your 2008 income tax return, you can still claim the credit as late as Oct. 15,2009 If you have already filed your 2008 return before the purchase of a home, file an amended 2008 tax return on Form 1040X (available www.irs.gov) If you plan to claim the credit on your 2009 tax return, you can modify your income tax withholding (through employers) or adjust your quarterly estimated tax payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their employer. In many cases their withholding would decrease and their take-home would increase. Those who make estimated tax payments would make similar adjustments. Q. Will I ever have to repay the credit? A. If you claim the credit but then sell the property within three years of the date of purchase, you are required to pay back the full amount of any credit, including any refund you received from it. A few exceptions apply. Source: National Association of Realtors® NOTE: This document is for informational purposes and should not be construed as tax or legal advise. For specific advice, consumers should always consult a qualified tax professional.