Taking the New 2009 First-Time Homebuyer's Credit

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It's a new and improved version of the 2008 First-Time Homebuyer's Credit that should help make buying a home more affordable for many buyers. The credit has been increased from to $8,000, and doesn't need to be repaid. For purchases after November 7, 2009, a $6,500 credit is also available to qualifying repeat buyers.

Buy a first home and earn a tax credit of up to $8,000. This provision of the 2009 American Recovery and Reinvestment Act, the "stimulus" bill, can put $8,000 in your pocket to help pay for your new digs. Better yet, under legislation signed into law in November 2009, the credit has been expanded and made easier to qualify for.

As a result,if you would otherwise get an average-size refund when you file your 2009 tax return - about $2,400 - qualifying to claim this new credit would boost your refund to more than $10,000.

Even better: Unlike the $7,500 tax credit available for Americans who bought their first home in 2008, this new version does not have to be repaid.

The rules as they were

The credit has taken several forms. The 2008 credit—available for first-time homebuyers who purchased after April 8, 2008 and before the end of 2008— was really an interest-free loan from the government.

For 2009 buyers, the credit really is a credit: It doesn’t have to be repaid. (One exception: You have to pay back the credit if you sell the house within three years of buying it.)

There are income limits for qualifying buyers. The right to use the credit was gradually phased out as Adjusted Gross Income (AGI) rises from $75,000 to $95,000 on a single return, or $150,000 to $170,000 on a joint return. (AGI is basically taxable income before subtracting your personal and dependent exemptions, and your standard or itemized deductions.) If you report $160,000 of AGI on a 2009 tax return, you’d be halfway through the phase-out zone, so you’d qualify for just $4,000 of credit which is half of the $8,000 maximum amount.

New rules now apply

As amended in November 2009, the First-Time Homebuyer’s Credit has been extended to purchases in contract by April 30, 2010 and closed by June 30, 2010. For members of the armed forces serving at least 90 days outside the United States, the credit can be used until June 30, 2011.

For purchases made after November 7, 2009, the income limits for elibility have also been expanded. The credit does not start to phase out until Modified Adjusted Gross Income exceeds $125,000 for single taxpayers and $225,000 for married couples filing jointly.

In addition, for purchases made after November 7, 2009, the credit can be claimed by homeowners purchasing a new principal residence so long as they have lived in their current home for at least five out of the last eight years. For repeat purchasers, the credit is capped at $6,500.

If you want to amend your tax return to claim the credit

Under both the old and the new versions of the law, you can treat the purchase as having taken place on December 31 of the prior year if you want to claim the credit against that year’s taxes. You are also permitted to file an amended return for the prior year, if you’ve already filed, so that you can receive the credit immediately rather than waiting to file your 2009 tax return in 2010. Congress has also provided that taxpayers won’t have to repay 2009 credits they took on their 2008 tax returns.

Getting your money

Most qualifying taxpayers will claim the credit (10% of the house price up to a maximum of $7,500 for 2008 buys or $8,000 for purchases through May 1, 2010 ) on their tax returns (Form 5405).

This should put money in your pocket within weeks of the time you file your tax return. If you owe more tax with your return than your credit amount, it will instantly reduce your tax bill dollar-for-dollar. If you owe less than your first-time homebuyer’s credit, you’ll get the balance as a tax refund.

Filing your return electronically and having the refund direct-deposited to your bank account is the fastest way to get your money.

Getting your money even faster, with government help

Most people who use the First-Time Homebuyer Credit will not receive it until after they buy their homes and claim the credit on their tax returns.

However, some buyers can get all or part of their credit up front, to pay for closing costs and all or part of their down payments, thanks to federal and state housing programs:

• The federal department of Housing and Urban Development (HUD) announced May 29, 2009 that homebuyers using Federal Housing Administration (FHA) loans can apply the credit to their down payments and closing costs. Buyers must first make a 3.5% minimum down payment to qualify for the loan, but can immediately use the credit for additional down payment or other closing costs.
  
  
• In some states, state Housing Finance Agencies and certain non-profit organizations will allow qualified homebuyers to apply the credit to their down payments (without the 3.5 percent buyer's contribution), using financing provided by the agencies or the non-profits.
  For more information, visit the HUD website.
  

For more information, visit the HUD website.

This short video from the IRS provides a quick overview of the First-Time Homebuyer’s Credit

 

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