Want a free $8,000 tax credit just for buying a home? Well, if you’re a first-time home buyer, you may be eligible for a first-time home buyer tax credit of up to $8,000. If you ever thought about buying a home, now might be a good time to go for it.
I know this credit has been around for some time now. But earlier in the year I wasn’t too interested in it. Truthfully, I was mad that I didn’t get 8 Gs towards my home purchase, which I bought back in 2007. But, I’m over it now, and there’s been enough changes with this thing to warrant a fresh post from me. So, here goes.
About the $8,000 First-Time Home Buyer Tax Credit
Back in 2008, in attempts to spend our way out of trouble, the US Government passed the Housing and Economic Recovery Act. Included in the act was a credit for all first-time home buyers of $7,500. That credit was then replaced by a $8,000 tax credit as a result of the American Recovery and Reinvestment Act of 2009.
The credit, as you can tell by the name, is meant to encourage the purchase of homes by people who don’t already have them. I guess the theory is that all these newbies get out there and buy the homes lost in foreclosure.
How Much is the Home Buyer Tax Credit?
The 2008 credit was for $7,500, and unfortunately needed to be paid back. The current 2009 version is for $8,000, and never has to be paid back. That’s amazing, isn’t it? I’m so jealous.
To clarify, the credit is “up to” $8,000. It’s actually the lesser of 10% of the home price or $8,000. That’s a nice chuck of free cash. I can think of a lot of things I could do with that credit.
It should also be noted that the credit is refundable. So, it does more than just offset taxes owed. You get the extra cash in had.
Who is Considered a First-Time Home Buyer?
Okay, so if I don’t qualify for this credit, who does? First-time home buyers according to the IRS guidelines are taxpayers who have not owned a principle residence at any time during the three years prior to the date of the purchase. So, really, it should be called “it’s been a while” home buyer credit.
And you must be purchasing the home. It can’t be a gift.
Another stipulation is that you must stay in the home for three years. (How is the IRS going to audit that one?)
The home purchase should be made between January 1, 2009 and November 30, 2009 to be eligible for the 2009 credit of up to $8,000. Purchases prior to January 1, 2009 are only eligible for the 2008 version.
So, the key thing to take away from this is to make sure you find your best mortgage rate and purchase your home before December 1, 2009. I bet that will be a hectic closing day for some. Although, I’m thinking this credit might get extended, cash-for-clunkers style. UPDATE: The credit was extended as predicted.
How to Apply to Get the Credit Now
Getting the credit is extremely easy. The IRS has created a form to be filed with your return. It’s Form 5405, and it essentially only requires that you list the date of the purchase, purchase price, and the address of the home. The 2009 credit can be taken against your 2008 return. So, if you buy a home today and qualify for this credit, you can file an amended 2008 return and receive your $8,000 credit now. Actually, the process apparently takes around six weeks. Still, that’s fast action.
In it’s continued assault on high earners, our government required that this credit only be given to those under certain income levels. Joe the Plumber would be proud. Anyway, here are the specs: the credit phases out for incomes between $75,000 to $95,000 for a single filer, and $150,000 to $170,000 for couples.
Fraudulent First-Timer Claims
When I first looked into this credit and how easy it was to make the claim, I thought surely the IRS must be getting flooded with fraudulent claims. After all, you don’t need to turn in anything but the one Form 5405. No closing documents. No sales contracts. Nothing.
Recent news is saying that there is fraud out there. And the IRS is cracking down on the tax preparers that are caught over-doing it, and/or skimming from the top. Tax preparers are obviously held to a higher standard. If the IRS catches you, you’ll likely just face back taxes and penalties. That makes me think many taxpayers might be cheating the system here and taking their chances for the $8,000.
Regardless, this looks to be another tax payer funded program that could legitimately put cash in your pocket, if you’re in the right place at the right time. I wish I was.
I’d love to hear your story of buying a home this year as a first timer. If you recieved your $8,000 credit already, or if you are planning on getting it before the deadline, let us hear about it in the comments below.