First Time Home Buyer Tax Credit
Posted by Calum and Kathleen MacKenzie on Monday, December 21st, 2009 at 2:48pm.The newly-signed economic stimulus bill has some good news for first-time home buyers, with a tax credit which lawmakers hope will stimulate the housing market. The new legislation offers a tax credit of 10% of the purchase price of the home, up to a maximum of $8,000 for eligible home buyers. Before we get started a little disclaimer, as with any tax related matter it's always wise to consult with your tax professional. :-)
Who is Eligible for the Tax Credit?
The eligibility requirements for the tax credit are very simple. To be eligible for the credit, you must meet the following criteria:
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You must be a “first-time home buyer,” This means you must not have owned a principal residence for at least three years prior to the eligible purchase. If you are a married couple purchasing a home, this applies to both you and your spouse.
Owning a property that is not your principal residence (such as a vacation home or investment property) does not disqualify you from receiving the tax credit.
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You must purchase the qualifying home between January 1, 2009, and December 1, 2009. The date of purchase is the date on which you receive title to property.
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You must be buying a home to serve as your principal residence. Any kind of home, including house boats, mobile homes, condos, and apartments, can qualify as long as it meets this criterion. A home built on a lot you purchased prior to 2009 may also qualify, providing the home itself was completed, and first occupied, during the qualifying period..
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Your income must be less than $75,000 (for an individual) and $150,000 (for a married couple) to qualify for the full tax credit.
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Individuals with incomes of $75,000 to $95,000 and couples with incomes of $150,000 to $170,000 may be eligible for a reduced tax credit. The credit reduces to zero at the upper end of the limit.
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The tax credit does not have to be repaid. However, if you claim the credit you the home you buy must remain your principal residence for at least three years after purchase, or the tax credit may be recaptured.
How can you Claim the Tax Credit?
Claiming the tax credit only requires filling out one extra form. Complete IRS Form 5405 to determine how much credit you qualify for, and then add this figure to line 69 of your 1040 income tax return. You don’t need to apply for the tax credit or be pre-approved, but it’s a good idea to make sure you qualify for the credit before buying the home.
The tax credit is refundable, so you can claim all of the credit you’re qualified for even if the income tax you owe is less than the credit. If you’re in this situation, you’ll receive a check for the remainder of the credit.
Finally, there are two ways in which you may be able to access the credit money before filing your 2009 tax return.
First, you are able to reduce your income tax withholding up to the amount of the credit you qualify for. This means you could use the credit money for your home’s down payment, or for any other purpose. IRS Publication 919 has more information about income tax withholding.
Second, you may be able to apply your tax credit against your 2008 tax return instead of your 2009 tax return, as you can opt to treat the qualified home as though you purchased it on December 31, 2008. You can even choose to claim the credit in either 2008 or 2009 to ensure your income eligibility. If, for example, your income in 2008 was lower than your projected income in 2009, you could opt to claim on your 2008 tax return to ensure your eligibility, or to potentially receive a larger tax credit.
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