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Do You Know Which First-Time Homebuyer Tax Credit You Really Qualify For?
February 26th, 2009 categories: Buying, Resources, The Economy
Law Passed Just Last Week; Tax Forms Have Already Been Revised To Reflect The New Regs
Ever since President Obama signed the American Recovery and Reinvestment Act (ARRA) into law last week, there’s been a lot of confusion here in Solano County over the first-time buyer tax credits.
Do I qualify? Do I get $7,500 or $8,000? Do I have to pay it back? When can I claim it? These are just a few of the questions that have been on the minds of many local first-time buyers in Benicia and Vallejo (and probably throughout the rest of the Bay Area and U.S.).
In the days before and since President Obama signed the stimulus bill, so much has been written about the tax credit (including here) that many first-time buyers are simply confused.
Well fortunately, in what seems like record time, the Treasury Department and the IRS have already amended the current tax forms to conform to the new law. So now we have something in black and white that hopefully will clear up much of the confusion. Based on what’s in Form 5405 (download it below), here’s what you can expect:
- 2008 Purchases — If you bought between Apr. 9 and Dec. 31 last year, and meet the first-time buyer and income limit tests (see below), you qualify for the $7,500 tax credit. However, this credit must be repaid in its entirety, in 15 equal annual payments ($500/year), starting in 2010.
- 2009 Purchases — If you buy between Jan. 1 and Nov. 30 of this year, and meet the same first-time buyer and income tests, you get an $8,000 tax credit, which doesn’t have to be repaid as long as the home remains your principal residence for at least three years.
- Maximum Credit Amount — The credit is actually for 10% of the purchase price, with a maximum of $8,000 for the ‘09 credit and $7,500 for the ‘08 credit. Even in the current low-priced market, most homes are still well over $80,000, which means that most eligible Bay Area buyers will be entitled to the maximum credit.
- If You Sell Early — If you’re eligible for the 2008 credit and sell before the 15-year repayment period is over, you must pay the entire remaining balance in the tax year covering the year of your sale. For the 2009 credit, if you move before three years, then you must pay back the entire $8,000 when you file the tax return for that year.
- Income Limits — In order to qualify for the full amount of either credit, your modified adjusted gross income must be no more than $75,000 (individuals) or $150,000 (joint filers). The amount of the credit is reduced for individuals earning between $75k-$95k and for joint filers earning between $150k-$170k.
- First-Time Buyer Rules — Even if you’ve owned a home before, you may still qualify as a First-Time Buyer. In order to be eligible for the credit, you must not have owned your principal residence for at least three years prior to your purchase date.
- December ‘09 Not Included – For some strange reason, the 2009 tax credit ONLY covers homes purchased BEFORE Dec. 1 of this year. So if you’re in an escrow that gets delayed beyond Nov. 30, you won’t qualify for the credit (unless, of course, Congress eventually extends the eligibility period beyond Nov. 30).
- Take The Credit For ‘08 Even If You Bought In ‘09 — You read that correctly. Even if you bought this year, you can still take the credit on your 2008 tax return if you’d like, which means you don’t have to wait for your money until next tax season.
- Exceptions — There are a number of exceptions, some of which may affect you. For example, you don’t qualify for the credit if you acquired your home from a relative or if one spouse owned a home within the past three years. Some of these exceptions are explained on IRS Form 5405 (download it below). Nevertheless, be sure to read the disclaimer below, then consult with your tax professional.
Disclaimer — As with any discussion of taxes, there are various exceptions to these rules. What appears here is not meant to be tax advice but rather a recap of some of the highlights from the amended IRS form as of Feb. 2009. Accordingly, before making any determinations about the first-time buyer tax credit, be sure to consult with your personal tax adviser to find out how it affects your own tax situation.
Get Form 5405 From The IRS
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