A Tax Tip Article from The Tax Institute at H&R Block
There’s great news for first-time homebuyers in 2009!
For eligible first-time homebuyers who purchase a home on or after Jan. 1, 2009 and before May 1, 2010, the first-time homebuyer tax credit is now $8,000 and unlike eligible first-time homebuyers in 2008, the qualified 2009 or 2010 first-time homebuyer no longer has to repay the credit unless the homeowner sells or moves out of the home within 3 years of purchase. This is BIG!
The tax credit is 10 percent of the purchase price of the home with a maximum credit of $8,000 (or $4,000 if married filing separately). For purchases prior to Nov. 7, 2009, the $8,000 credit begins to phase out for individuals with MAGI (modified adjusted gross income) over $75,000 and at $150,000 for married couples filing jointly. It is fully phased out for individuals with MAGI of $95,000 and at $170,000 for joint filers, half that amount for married persons filing separate returns.
For purchases after Nov. 6, 2009, the credit begins to phase out for individuals with MAGI over $125,000 and at $225,000 for married couples filing jointly. The credit is fully phased out for individuals with MAGI of $145,000 and at $245,000 for joint filers. Additionally, for purchases after Nov. 6, 2009, the credit can only be claimed if the purchase price does not exceed $800,000.
Long-time homeowners who purchase a replacement home after Nov. 6, 2009 and before May 1, 2010 can qualify for up to a $6,500 ($3,250 for couples filing separately) refundable credit. As with the $8,000 credit, the credit must only be repaid if you sell it or stop using it as your principal residence within 3 years of purchase.
Qualifications
In addition to income requirements for eligibility for the $8,000 homebuyer credit, there are some other things you should know to qualify for the credit:
- You (and your spouse, if married) cannot have owned a home in the three years prior to the purchase
- You cannot purchase your new home from a close relative of you or your spouse, including a parent, grandparent, child or grandchild, though the purchase of a home from a sibling (brother or sister) does not disqualify you from claiming the credit; purchases from step-relatives are allowed for the credit as well
- You also cannot claim the credit for a home purchased from a related taxpayer such as a corporation or partnership in which you and/or your relatives (or your spouse and his or her relatives) own more than a 50% interest.
- You must purchase the home on or after Jan. 1, 2009, and before May 1, 2010; for a home under construction, you must occupy the home before May 1, 2010. Note: A special rule allows you to qualify for the credit if you have entered into a binding purchase contract before May 1, 2010, and you close on the home before July 1, 2010.
- The home must be used as your principal residence; rental property and vacation homes do not qualify for the credit
- You are not eligible for the credit if you are a nonresident alien; for married couples filing jointly, at least one of you must be a U.S. citizen or resident to qualify for the credit
- The credit does not apply to homes located outside the U.S.
- If you owned a principal residence outside of the U.S. within the last 3 years, and meet the other requirements, you are eligible to claim the first-time homebuyer credit for a home purchase in the U.S.
The eligibility rules for the $6,500 credit are similar to the rules for the $8,000 credit, except that you must have
- Owned and lived in the same principal residence for at least 5 consecutive years out of the last 8 years prior to purchasing the replacement home
- Purchased the replacement home after Nov. 6, 2009, and before May 1, 2010 (or have a binding purchase contract in effect prior to May 1, 2010 and close on the home before July 1, 2010).
Special rules may apply if you or your spouse is on extended active duty service outside the U.S.
Receiving the tax credit before you file your 2009 return
The IRS modified Form 5405, the Homebuyer Tax Credit form, in March of 2009 for those who purchased a home in 2009 and wanted to claim the credit on their 2008 return. If you want to claim the credit early instead of waiting until you file your 2009 return the tax analysts at The Tax Institute at H&R Block recommend that you consider filing an amended 2008 return (Form 1040X) so that you can receive the credit as soon as possible.
Claiming the credit on your 2009 return
If you purchased a home in 2009 and choose to claim the credit on your 2009 return, you should be aware that a late-year tax law change requires that a properly executed closing statement be submitted with your return. The IRS was not able to implement electronic submission of the closing statement before the upcoming filing season. As a result, any 2009 return that includes Form 5405 cannot be filed electronically.
This means that if you choose to claim the credit on your original 2009 return, the return must be mailed. You have the option of electronically filing your 2009 return without the homebuyer credit and then filing an amended return to claim the credit.
Note: Individuals who must file Form 5405 to repay the credit or report an exception to the repayment rules, also cannot electronically file Form 5405.
When in doubt …
As with any financial decision that has tax implications, the best advice is to always talk with your tax professional to determine a course of action that may be best for your individual financial situation.
This Tax Tip is brought to you by The Tax Institute at H&R Block. The Tax Institute is a national leader in providing unbiased research, analysis and interpretation of federal and state tax laws. Staffed by Enrolled Agents, CPAs and Attorneys, The Tax Institute provides industry expertise for matters related to taxes and the professional tax preparation industry.
This Tax Tip is for educational purposes only and is not intended to be a substitute for seeking personalized, professional advice, nor is it intended to be used to avoid IRS penalties. As always, everyone's tax situation is different, so be sure to consult a tax professional or financial advisor before making important financial decisions.
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