$8,000 Tax Credit

FAQ's

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.

The following questions and answers provide basic information about the 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.

1. Who's eligible?
   

   First-time home buyers purchasing any kind of homeÑnew or resaleÑare eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and on or before April 30, 2010. 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.

2. What do you mean by "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. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as a parent who 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.

3. How long does this last?
   

   The tax credit 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 still qualify.

4. Are there income limits?
   

   Yes. For sales occuring after November 6, 2009, the income limit for single taxpayers is $125,000 and $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 these amounts.

5. What if my MAGI is above the income limit?
   

   Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

6. What types of homes qualify?
   

   Any home, new or resale, 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, townhouses, condominiums, manufactured homes, and even houseboats. 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.

7. I hired a contractor to build my home on my own lot. Do I still qualify?
   

   Yes, a principal residence that is constructed by the home owner is treated as having been "purchased" on the date the owner first occupies the house, as long as it's on or after January 1, 2009 and on or before April 30, 2010. However, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

8. I'm ready to claim the credit! Where do I sign?!
   

   You can 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. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.

9. How can I access the money to the credit sooner than waiting to file my 2009 or 2010 tax return?
   

   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 downpayment.

   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.