First-Time Homebuyer Credit Questions and Answers: Basic Information
Q. What is the credit?
A. The first-time homebuyer credit is a new tax credit included in the recently enacted Housing and Economic Recovery Act of 2008. For homes purchased in 2008, the credit operates like an interest-free loan because it must be repaid over a 15-year period.
The credit was expanded in 2009 for homes purchased in 2009, increasing the amount of the credit and eliminating the requirement to repay the credit, unless the home ceases to be your principal residence within the 36-month period beginning on the purchase date.
Q. How much is the credit?
A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 ($8,000 if you purchased your home in 2009) for either a single taxpayer or a married couple filing a joint return, but only half of that amount for married persons filing separate returns. The full credit is available for homes costing $75,000 or more.
Q. Which home purchases qualify for the first-time homebuyer credit?
A. Any home purchased as the taxpayer's principal residence and located in the United States qualifies. You must buy the home after April 8, 2008, and before December 1, 2009, to qualify for the credit. For a home that you construct, the purchase date is considered to be the first date you occupy the home.
Taxpayers (including spouse, if married) who owned a principal residence at any time during the three years prior to the date of purchase are not eligible for the credit. This means that you can qualify for the credit if you (and your spouse, if married) have not owned a home in the three years prior to a purchase. If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 or 2009 income tax return.
Q. Can I apply for the credit if I bought a vacation home or rental property?
A. No. Vacation homes and rental property do not qualify for this credit.
Q. Who is considered to be a first-time homebuyer?
A. Taxpayers who have not owned another principal residence at any time during the three years prior to the date of purchase.
Q. When do I have to buy a new home to get the credit?
A. The home must be purchased after April 8, 2008, and before December 1, 2009, in order to obtain the credit. For a home you construct, the purchase date is considered to be the date you first occupy the home.
Q: How do I apply for the credit?
A: The credit is claimed on new IRS Form 5405 and filed with your 2008 or 2009 federal income tax return.
Q. Are there income limits?
A. Yes. The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on your modified adjusted gross income (MAGI). For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000. This means that the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
Q. I purchased a home that qualifies for the first-time homebuyer credit. I will be renting two of the bedrooms and reporting the rental income on Schedule E. Will I still qualify for the credit if I use the home as my principal residence?
A: Yes, if you meet all first-time homebuyer eligibility requirements. See Form 5405, First-Time Homebuyer Credit, for more details.
Q: If two unmarried people buy a house together, how do they determine how much each may take of the credit?
A: IRS Notice 2009-12 provides guidance for allocating the first-time homebuyer credit between taxpayers who are not married.
Q. I am a single co-owner of a home. How do I get this credit?
A. Depending on the year of purchase, you will claim the credit on either your 2008 or 2009 federal income tax return.
Q. I don't owe taxes and/or my income is exempt from tax and I do not have a filing requirement. Do I qualify for the credit?
A. The credit is fully refundable and, if you qualify as a first-time homebuyer, having tax-exempt income will not preclude eligibility. Although there are maximum income limits for qualifying first-time homebuyers, there are no minimum income criteria. Thus, someone with no taxable income who qualifies as a first-time homebuyer may file for the sole purpose of claiming the credit for a refund.
Q. Does the first-time homebuyer credit apply to homes located in the U.S. Territories?
A. No.
Q. Would I be considered a first time homebuyer if I owned a principle residence outside of the United States within the previous three years?
A. Yes. A taxpayer who owned a principal residence outside of the United States within the last three years is not disqualified from taking the credit for a purchase within the United States.
Q. If qualified, are homebuyers required to claim the first-time homebuyer credit?
A. No.
Q. Who cannot take the credit?
A. If any of the following describe you, you cannot take the credit, even if you buy a new home:
· Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
· You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
· You do not use the home as your principal residence.
· You sell your home before the end of the year.
· You are a nonresident alien.
· You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
· Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
· You owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.
First-Time Homebuyer Credit Questions and Answers: Homes Purchased in 2008
Q. How is the credit repaid on a 2008 home purchase?
A. The first-time homebuyer credit will be recaptured on Form 1040 as additional tax and is repaid in 15 equal annual installments beginning in the second tax year after the year in which the credit is claimed.
Q. When must I pay back the credit for the home I purchased in 2008?
A. For homes purchased in 2008, the first-time homebuyer credit is similar to a 15-year interest-free loan. You must begin repaying the loan the second year after claiming the credit. It is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed.
For example, if you properly claim the maximum available credit of $7,500 on your 2008 federal tax return, you must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on your 2010 federal tax return. Normally, $500 will be due each year from 2010 to 2024.
There are a number of exceptions that apply to the repayment rule. Please see Form 5405 and its instructions; review the first-time homebuyer credit section of Publication 17, Your Federal Income Tax for Individuals; or consult your tax professional.
Q. For homes purchased in 2008, how will the IRS know if someone sells their residence before the 15 years are up?
A. Through both self reporting and third-party information.
First-Time Homebuyer Credit Questions and Answers: Homes Purchased in 2009
Q. Is the IRS currently accepting e-filed returns that claim the new $8,000 homebuyer credit in/for the 2008 tax year?
A. Yes. Taxpayers can file Form 5405, First Time Homebuyer Credit, electronically for home purchases in 2008 to claim the first-time homebuyer credit. IRS began processing these returns electronically on March 30, 2009.
Q.I bought my home in 2009 (early) and filed my 2008 tax return claiming the $7,500 first-time homebuyer credit that has to be repaid. Now the expanded law provides for an $8,000 credit that doesn't have to be repaid. What do I need to do to get the $8,000 credit that doesn't have to be paid back?
A. You can file an amended return.
Q. If I purchase a home in June 2009, and have already filed my 2008 tax return, can I amend my 2008 return or will I have to claim it on my 2009 return?
A. You can either file an amended return to claim it on your 2008 return or claim it on your 2009 return.
Q. I am in the process of buying a home. I expect to close the deal before December 1, 2009. Can I claim the first-time homebuyer credit now? That would allow me to use the refund for a down payment.
A. No. You may not claim the credit in anticipation of a purchase that has yet to happen. Until you have finalized the purchase of your home, which for most purchasers occurs at the time of the closing, you do not qualify for the credit. IRS news release 2009-27, First-Time Homebuyers Have Several Options to Maximize New Tax Credit, contains details for filing options if the home is purchased after April 15, 2009.
Q: When must I pay back the credit for the home I purchased in 2009?
A: Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009. The obligation to repay the credit on a home purchased in 2009 arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.
Q. If I claim the first-time homebuyer credit for a purchase in 2009 and stop using the property as my principal residence before the 36 month period expires after I purchase, how is the credit repaid and how long would I have to repay it?
A. If, within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full amount of the credit is due at that time the income tax return for the year the home ceased to be your principal residence is due. The full amount of the credit is reflected as additional tax on that year's tax return. Form 5405 and its instructions will be revised for tax year 2009 to include information about repayment of the credit.
First-Time Homebuyer Credit: Scenarios
S1. If a single person (Taxpayer A) qualifies as a first-time homebuyer at the time he/she purchases a home with someone (Taxpayer B) that is not a first-time homebuyer and then later that year they marry each other, is the credit still allowed?
A. Eligibility for the first-time homebuyer credit is determined on the date of purchase. If Taxpayer A, a first-time homebuyer, buys a house and then later that year marries Taxpayer B, not a first-time homebuyer, the credit is allowable to Taxpayer A. Taxpayer A may take the maximum credit.
S2. Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Can Taxpayer A claim the credit and, if so, how much?
A. Yes. Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A's primary residence.
S3. A taxpayer owned her principal residence. Several years ago, she decided to relocate to a rented apartment, but did not sell the former residence. Instead, she rented it out to tenants. Now the taxpayer plans to buy another house and make it her new principal residence. Does she qualify for the first-time homebuyer credit?
A: A taxpayer who owned rental property within the past three years is still eligible for the credit. The taxpayer cannot have owned and used a home as his or her principal residence within the last three years.
S4. If husband and wife wanted to sell the home that the wife owned when they got married, and the husband had not owned a home within the past three years, could he qualify as a first-time homebuyer for the credit even though the wife would not qualify?
A. No. The purchase date determines whether a taxpayer is a first-time homebuyer. Since the wife had ownership interest in a principal residence within the prior three years, neither taxpayer may take the first-time homebuyer credit. Section 36(c)(1) of the Internal Revenue Code requires that the taxpayer and the taxpayer's spouse not have an ownership interest in a principal residence within the prior three years from the date of purchase. The husband may not take the credit even if he filed on a separate return.
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