Josephine Godinez, PA
Federal Housing Tax Credit

The $8,000 First-Time Home Buyers Tax Credit

May 8, 2009 by Josephine · Leave a Comment 

The above referenced first-time home buyers tax credit topic is one of the most talked about these days. I would say that I am most frequently asked about short sales and foreclosures, with tax credit questions coming in a close third. While it is always advisable to discuss your own personal situation with a trusted tax professional, the following should answer most of your general questions.

1. Is this the same tax credit that I heard about last year (2008)?

No. The $8,000 first-time home buyers tax credit was created as part of the American Recovery and Reinvestment Act of 2009 and differs in several ways from the tax credit put forth by the Bush Administration in the fall of 2008. If you purchased a home after April 8, 2008 and by no later than December 31, 2008, you may qualify for a tax credit of up to $7,500 under IR-2008-106. The biggest difference is that the $8,000 tax credit does not have to be repaid.

2. Will I qualify for the $8,000 tax credit?

Eligibility is based upon several factors including when you plan to purchase the home, your status as a “first-time” home buyer, your income and the purpose of the home purchase. Details are as follows:

Timing

To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. 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.

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 home ownership 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, unmarried joint purchasers may 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.

Income Limitations

The income limit for single taxpayers is $75,000; the limit is $150,000 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 $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout 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 $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

Type of Home Purchase

First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. Any home that will be used as a principal residence will qualify. 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.

3. What does it mean that the tax credit is 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. Please keep in mind that a tax credit is different than a tax deduction.

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). Not bad, right?

4. How do I claim the tax credit?

Participating in the tax credit program is easy. 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 69 of their 1040 income tax return. No other applications or forms 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.

5. If I am not a U.S. Citizen, can I still 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. The IRS provides a definition of “nonresident alien” in IRS Publication 519.

Should you have any other questions, the official Federal Housing Tax Credit site provides all the information that you should need to take advantage of this outstanding program. Best of luck!

Josephine Godinez, PA