Qualified first-time homebuyers only have until November 30th to finalize the purchase of a home and receive up to $8,000 from the government. Since it takes a few months or more to locate a home, obtain financing, and close on the property, now's the time to check out the open houses in the neighborhoods where you want to live. It probably also makes sense to get pre-approved for a mortgage in order to save time once you find your dream home.
In an attempt to buoy the housing market while still in office, President Bush introduced a $7,500 first-time homebuyer credit as part of the Housing Assistance Tax Act of 2008. This tax credit was to apply to homes purchased between 4/9/08 and 6/30/09, and was equal to the lower of 10% of the home's purchase price or $7,500.
"The 2008 version of this tax break contained a unique feature, however," explains Andrew Schwartz CPA, founder of FindAGoodCPA.com (www.FindAGoodCPA.com), a site where taxpayers can locate a tax professional in their metropolitan area based on the professional's specialty. "Anyone receiving this tax credit would need to repay the amount of the credit over fifteen years, making it more like an interest-free loan from the government than a true tax credit. So if you got the full $7,500 first-time homebuyer credit, you would report and pay an extra $500 annually as part of your tax return until you repaid the government in full."
Extended and Improved
President Obama extended and improved the first-time homebuyer credit as part of the American Recovery and Reinvestment Act of 2009. Here are some of the 2009 changes to this tax break:
· Extended the time for first-time homebuyers to purchase a home and qualify for this tax break from 6/30/09 to 11/30/09.
· Increased the tax break by $500 - from $7,500 for homes purchased between 4/9/08 and 12/31/08 to $8,000 for homes purchased between 1/1/09 and 11/30/09.
· Waived the repayment requirement for homes purchased in 2009 that are owned and used as a principal residence for at least three years.
Who Qualifies?
According to the IRS, "Taxpayers who have not owned another principal residence at any time during the three years prior to the date of purchase" qualify for this tax credit. If you're married, neither spouse could have been homeowners during that three-year window.
Like pretty much every tax break introduced since 1986, this tax break includes an income limitation excluding high-income and middle-income taxpayers from claiming this credit. Both versions of this tax break have identical phase-out provisions - single individuals with Adjusted Gross Income (AGI) of $75K - $95K and married couples with AGI of $150K - $170K. Earn more than $95k if single or $170k if married, and you're out of luck.
Unmarried Homeowners
How does this tax credit work when two unmarried individuals purchase a home together? If the income for one of the buyer's exceeds the phase-out limit, the answer is simple. The other buyer whose income falls below the phase-out limitations claims the full tax credit.
Otherwise, the first-time homebuyer credit may be allocated between the taxpayers using any reasonable method. Check out the IRS' report on the Allocation of First-Time Homebuyer Credit Between Taxpayers Who Are Not Married (available at www.irs.gov) for examples of how they recommend new homebuyers split this tax break.
Claiming the Credit
"Claiming the First-Time Homebuyer tax credit is pretty simple. Just complete and attach a Form 5405 to either your federal income tax return (Form 1040) or an amended tax return (Form 1040X). If you purchased your home between 4/9/08 and 12/31/08, your only option is to claim this credit as part of your 2008 tax filings," says Schwartz.
Anyone who purchases a home between 1/1/09 and 11/30/09 has a decision to make. They can either amend their 2008 tax return and claim the credit as part of their 2008 tax filings or claim the tax credit in connection with their 2009 Form 1040.
"One key factor is whether your AGI falls below the threshold of $75k for single individuals or $150k for married couples in 2008 and/or 2009. If your income fell below the applicable threshold in 2008, go ahead and amend your 2008 tax return to get back this $8,000 tax credit as soon as possible. Otherwise, you might be better off waiting to claim the credit as part of your 2009 tax return," says Schwartz.
About Andrew D. Schwartz CPA
Andrew D. Schwartz, CPA is the editor and founder of www.FindAGoodCPA.com, a site where taxpayers can interact with CPAs who specialize in a variety of niches. Schwartz has provided tax and basic financial planning advice in interviews with various media, including the Washington Post, SmartMoney, and Wall Street Journal. He is available for interviews.
