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The Stimulus Tax Credits Expired April 30, 2010
Congratulations to everyone who took advantage of this historic
opportunity!
Frequently Asked Questions
First-Time Homebuyers $8000 Tax Credit
Updated:
11/25/09
The Worker, Homeownership, and Business Assistance Act of 2009 has
extended the tax credit of up to $8,000 for qualified first-time
home buyers purchasing a principal residence. 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.
The following questions and answers provide basic information about
the $8000 tax credit. If you have more specific questions, we
strongly encourage you to consult a qualified tax advisor or legal
professional about your unique situation.
Who is eligible to claim the $8,000 tax
credit?
First-time home buyers purchasing any kind of home (new
or resale) are eligible for the tax credit. To qualify for the tax
credit, a home purchase must occur on or after December 1, 2009 and
on or before April 30, 2010. For the purposes of the tax credit, the
purchase date is the date when closing occurs and the title to the
property transfers to the home owner.
However, the law also allows home sales occurring by June 30, 2010
to qualify, provided they are due to a binding sales contract in
force on or before April 30, 2010. (see
chart)
What's the definition of a first-time home
buyer?
The law defines “first-time home buyer” as a buyer who
has not owned a principal residence during the three-year period
prior to the purchase. For married taxpayers, the law tests the
homeownership history of both the home buyer and his/her spouse.
For example, if you have not owned a home in the past three years
but your spouse has owned a principal residence, neither you nor
your spouse qualifies for the first-time home buyer tax credit.
However, IRS Notice 2009-12 allows unmarried joint purchasers to
allocate the credit amount to any buyer who qualifies as a
first-time buyer, such as may occur if a parent jointly purchases a
home with a son or daughter. Ownership of a vacation home or rental
property not used as a principal residence does not disqualify a
buyer as a first-time home buyer.
How is the amount of the tax credit
determined?
The tax credit is equal to 10 percent of the home’s
purchase price up to a maximum of $8,000.
Are there any income limits for claiming
the tax credit?
Yes. For sales which occur after November 6, 2009, the
income limit for single taxpayers is $125,000; the limit is $225,000
for married taxpayers filing a joint return. The tax credit amount
is reduced for buyers with a modified adjusted gross income (MAGI)
of more than $125,000 for single taxpayers and $225,000 for married
taxpayers filing a joint return. The phase out range for the tax
credit program is equal to $20,000. That is, the tax credit amount
is reduced to zero for taxpayers with MAGI of more than $145,000
(single) or $245,000 (married) and is reduced proportionally for
taxpayers with MAGIs between these amounts.
The income limits for claiming the tax
credit were raised when the tax credit was extended. Are the higher
limits retroactive?
No. The new income limits are only applicable to
purchases occurring after December 1, 2009.
Income limits for sales which occurred on or after January 1, 2009
and on or before November 30, 2009 are $75,000 for single taxpayers
and $150,000 for married couples filing jointly.
What is “modified adjusted gross income”?
Modified adjusted gross income or MAGI is defined by the
IRS. To find it, a taxpayer must first determine “adjusted gross
income” or AGI. AGI is total income for a year minus certain
deductions (known as “adjustments” or “above-the-line deductions”),
but before itemized deductions from Schedule A or personal
exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last
number on page 1 and first number on page 2 of the form. For Form
1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes
all forms of income including wages, salaries, interest income,
dividends and capital gains.
How is this home buyer tax credit different
from the tax credit that Congress enacted in early 2009?
The tax credit’s income limits were increased, the
documentation requirements were tightened, and the program's
deadlines were extended to April 30, 2010.
The program was also extended
to current homeowners.
How do I claim the tax credit & do I need
to complete a form or application? Are there documentation
requirements?
You claim the tax credit on your federal income tax
return. Specifically, home buyers should complete IRS Form 5405 to
determine their tax credit amount, and then claim this amount on
line 67 of the 1040 income tax form for 2009 returns (line 69 of the
1040 income tax form for 2008 returns). No other applications are
required, and no pre-approval is necessary. However, you will want
to be sure that you qualify for the credit under the income limits
and first-time home buyer tests. Note that you cannot claim the
credit on Form 5405 for an intended purchase for some future date;
it must be a completed purchase. Home buyers must attach a copy of
their HUD-1 settlement form (closing statement) to Form 5405 as
proof of the completed home purchase.
What types of homes qualify for the tax
credit?
Any home that will be used as a principal residence will
qualify for the credit, provided the home is purchased for a price
less than or equal to $800,000. This includes single-family detached
homes, attached homes like townhouses and condominiums, manufactured
homes (also known as mobile homes) and houseboats. The definition of
principal residence is identical to the one used to determine
whether you may qualify for the $250,000 / $500,000 capital gain tax
exclusion for principal residences.
It is important to note that you cannot purchase a home from, among
other family members, your ancestors (parents, grandparents, etc.),
your lineal descendants (children, grandchildren, etc.) or your
spouse or your spouse’s family members. Please consult with your tax
advisor for more information. Also see IRS Form 5405.
Is the tax credit “refundable?”
The fact that the credit is refundable means that the
home buyer credit can be claimed even if the taxpayer has little or
no federal income tax liability to offset. Typically this involves
the government sending the taxpayer a check for a portion or even
all of the amount of the refundable tax credit.
For example, if a qualified home buyer expected, notwithstanding the
tax credit, federal income tax liability of $5,000 and had tax
withholding of $4,000 for the year, then without the tax credit the
taxpayer would owe the IRS $1,000 on April 15th. Suppose now that
the taxpayer qualified for the $8,000 home buyer tax credit. As a
result, the taxpayer would receive a check for $7,000 ($8,000 minus
the $1,000 owed).
Instead of buying a new home from a home
builder, I hired a contractor to construct a home on a lot that I
already own. Will I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a
principal residence that is constructed by the home owner is treated
by the tax code as having been “purchased” on the date the owner
first occupies the house. In this situation, the date of first
occupancy must be on or after January 1, 2009 and on or before April
30, 2010 (or by June 30, 2010, provided a binding sales contract was
in force by April, 30, 2010).
In contrast, for newly-constructed homes bought from a home builder,
eligibility for the tax credit is determined by the settlement date.
I am not a U.S. citizen. Can I claim the
tax credit?
Maybe. Anyone who is not a nonresident alien (as defined
by the IRS), who has not owned a principal residence in the previous
three years and who meets the income limits test may claim the tax
credit for a qualified home purchase.
Is a tax credit the same as a tax
deduction?
No. A tax credit is a dollar-for-dollar reduction in what
the taxpayer owes. That means that a taxpayer who owes $8,000 in
income taxes and who receives an $8,000 tax credit would owe nothing
to the IRS.
A tax deduction is subtracted from the amount of income that is
taxed. Using the same example, assume the taxpayer is in the 15
percent tax bracket and owes $8,000 in income taxes. If the taxpayer
receives an $8,000 deduction, the taxpayer’s tax liability would be
reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to
$6,800.
I bought a home in 2008. Do I qualify for
this credit?
No, but if you purchased your first home between April 9,
2008 and January 1, 2009, you may
qualify for a different tax credit. Please consult with your tax
advisor for more information.
Is there a way for a home buyer to access
the money allocable to the credit sooner than waiting to file their
2009 or 2010 tax return?
Yes. Prospective home buyers who believe they qualify for
the tax credit are permitted to reduce their income tax withholding.
Reducing tax withholding (up to the amount of the credit) will
enable the buyer to accumulate cash by raising his/her take home
pay. This money can then be applied to the down payment.
Buyers should adjust their withholding amount on their W-4 via their
employer or through their quarterly estimated tax payment. IRS
Publication 919 contains rules and guidelines for income tax
withholding. Prospective home buyers should note that if income tax
withholding is reduced and the tax credit qualified purchase does
not occur, then the individual would be liable for repayment to the
IRS of income tax and possible interest charges and penalties.
HUD is now allowing "monetization" of the
tax credit. What does that mean?
It means that HUD allows buyers using FHA-insured
mortgages to apply their anticipated tax credit toward their home
purchase immediately rather than waiting until they file their 2009
or 2010 income taxes to receive a refund. These funds may be used
for certain down payment and closing cost expenses.
Under HUD’s guidelines, non-profits and FHA-approved lenders are
allowed to give home buyers short-term loans of up to $8,000. The
guidelines also allow government agencies, such as state housing
finance agencies, to facilitate home sales by providing longer term
loans secured by second mortgages.
Housing finance agencies and other government entities may also
issue tax credit loans, which home buyers may use to satisfy the FHA
3.5 percent down payment requirement. In addition, approved FHA
lenders can purchase a home buyer’s anticipated tax credit to pay
closing costs and down payment costs above the 3.5 percent down
payment that is required for FHA-insured homes.
If I’m qualified for the tax credit and buy
a home in 2009 (or 2010), can I apply the tax credit against my 2008
(or 2009) tax return?
Yes. The law allows taxpayers to choose (“elect”) to
treat qualified home purchases in 2009 (or 2010) as if the purchase
occurred on December 31, 2008 (or if in 2010, December 31, 2009).
This means that the previous year’s income limit (MAGI) applies and
the election accelerates when the credit can be claimed. A benefit
of this election is that a home buyer in 2009 or 2010 will know
their prior year MAGI with certainty, thereby helping the buyer know
whether the income limit will reduce their credit amount.
Taxpayers buying a home who wish to claim it on their prior year tax
return, but who have already submitted their tax return to the IRS,
may file an amended return claiming the tax credit using Form 1040X.
You should consult with a tax professional to determine how to
arrange this.
For a home purchase in 2009 or 2010, can I
choose whether to treat the purchase as occurring in the prior or
present year, depending on in which year my credit amount is the
largest?
Yes. If the applicable income phase out would reduce your
home buyer tax credit amount in the present year and a larger credit
would be available using the prior year MAGI amounts, then you can
choose the year that yields the largest credit amount.
> $8000 & $6500 Homebuyer Tax
Credit -
Updated:
11/25/09
> 2009 Economic Stimulus Plans -
$8,000 Tax Rebates Incentives for First-time Homebuyers
>
2009 FHA Changes & Down Payment Assistance
>
2009 Economic Stimulus Package Overview -
Updated:
2/17/09
> Homebuyer & Homeowner Stimulus
Package -
Released
2/6/09
The information on this web site for general
guidance only. The information on this website does not constitute the provision
of legal advice, tax advice, accounting services, investment advice, or
professional consulting of any kind nor should it be construed as such. The
information provided herein should not be used as a substitute for consultation
with professional tax, accounting, legal, or other competent advisers. Before
making any decision or taking any action on this information, you should consult
a qualified professional adviser to whom you have provided all of the facts
applicable to your particular situation or question. None of the tax information
on this web site is intended to be used nor can it be used by any taxpayer, for
the purpose of avoiding penalties that may be imposed on the taxpayer. The
information is provided "as is," with no assurance or guarantee of completeness,
accuracy, or timeliness of the information, and without warranty of any kind,
express or implied, including but not limited to warranties of performance,
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