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: $8,000 for First-Timers Gets Extended
The lawmakers have acted. There is now a $6,500 tax credit for current homeowners to go out and buy another home. You no longer have to be a first-timer to take advantage of the homebuyer credit. Trade up, baby! And as predicted by yours truly, Congress has also extended the $8,000 first-time homebuyer tax credit. I guess it’s good time to be looking for a home. But not so fast. There are some details to go over:
Amount of the Credit and Important Dates
As I write this, President Obama is likely signing the bill, which he’s promised to do. So don’t do anything until the bill becomes law if you’re a current homeowner looking to use the $6,500.
If you’re a first-time homebuyer and you were worried about not making the November deadline, you can breathe easy. You still qualify for up to $8,000 in tax credits. In addition, as was mentioned above, people who have owned their homes at least five years qualify for up to $6,500 in credits. I personally have been in my home for a measly three years. So I’m the guy caught in the middle paying his tax who’s not getting a piece of the action here.
Okay, enough of my sob story, here are the important dates involved with the new credit and the extension. It’s easy. The dates are the same for both. Your purchase must be secured by April 30, 2010 and your closings must be finalized by June 30, 2010.
Hold your horses, Richie Rich. You can’t partake. Here are the income limits that Congress says is fair: If you’re a single taxpayers with an adjusted gross income under $125,000 you are eligible for the credit’s full benefits. Joint filers must earn AGI of under $225,000 to get in on the action. If you have an income of up to $145,000 (single) or $245,000 (joint) may receive partial homebuyer tax credits. That’s what you call “phase outs” there folks.
Other Rules that Apply
There are some other rules you might want to be aware of:
- Only those homes that are $800,000 and under are eligible for the tax credit.
- Members of the military serving outside the United States for more than 90 days will have until June 30, 2011, to qualify for the tax credit.
- The program is expected to cost the federal government $10.8 billion.
I’ll mostly leave it to you to decide whether this is a positive thing or not. But I tend to think that while this is a windfall for some people, it’s just another prop up for our Economy as a whole.
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 received 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.
Q&A About the Credit
I find myself way behind in answering comments on my recent post about the $8,000 First Time Homebuyer Tax Credit. So instead of answering them all there, I thought I’d use today’s post to share some Q&A on the $8,000 tax credit. That way, everyone learns. Let’s get it started with some basic information.
What is the first time homebuyer tax credit?
In short, it’s a US federal tax credit available to qualifying individuals who are buying their first home. The credit has been around a while, but this year’s variety does not have to be paid back, and it can be for as much as $8,000.
Who is considered a first time homebuyer?
Taxpayers who have not owned a principle residence at any time during the three years prior to the date of the purchase. These taxpayers must be buying the home, not receiving it as a gift. And they must stay in the home for three years.
What is the deadline to buy a home and qualify for the credit?
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.
How do I get the credit?
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.
Does everyone get $8,000?
No. The credit is “up to” $8,000. It’s actually the lesser of 10% of the home price or $8,000. And the credit phases out for incomes between $75,000 to $95,000 for a single filer, and $150,000 to $170,000 for couples.
Now for some more complex questions from the readers:
Mel – Only my name that is on the deed of a house we recently purchased. To qualify for $8000 tax credit, should we have to file singularly, or as a married couple?
You will get the tax credit whether you file separately or jointly as a married couple. But married couples can only get one tax credit between them.
eric – Seller wanna rent the house for 10 days after closing. We plan and should be able to cloase on late Oct. My qestion is will the 10 day renting disqualify us to get $8000. We are otherwise qualified for that credit.
That should not disqualify you. You’re intent is to live in the house and take full responsibility for it. The 10 day rental, and you being a landlord isn’t the intent of buying the property. You intend to take possession and live in the property full-time. I think the IRS would see the 10 day period as only a temporary thing and separate it from the purchase. You might want to check with a CPA to be sure though.
abe – if i purchased a mobile home for 20000 would i get a 8000$ credit?
No. You would get a credit, but it would only be for $2,000, or 10% of the purchase price.
Cindi – We sold our home and closed Sept 2006 gave the keys to the new owner and had to be out. Well we got a call a couple of days later saying we needed to reclose due to financing. So, 2 wks later (after we’ve moved) we reclosed Oct. 12, 2006. Well we just built a new house and have moved in but will not close until Oct 1, 2009. I cannot move the Oct. 1st closing due to our construction loan has matured Will we be able to get any kind of credit?
Yes, you should get a refund. For all intents and purposes you lost possession of the house in September 2006 and didn’t have an ownership interest after that point. The 3 year clock starts ticking at that point. Therefore, you met your 3 year requirement. You may need to ask a CPA though to be sure.
Roxanne – My mother is considering buying her first home and is currently renting. She does not file a tax return each year because she falls below the income guidelines; her only income is SSI and SSD; Would she still be able to qualify since she does not file? And do you know how this would work?
As far as I can tell, she would be eligible for the credit. She would have to file a 2009 return. It’s worth visiting a CPA to get this done professionally for your Mom.
SHERRI – I MADE SETTLEMENT ON MY FIRST HOME THIS MONTH. HOWEVER, I HAVE PURCHASED THIS HOME WITH MY SON AND HE GAVE ME THE MONEY FOR THE CLOSING COSTS. HE IS MOVING IN RIGHT AWAY BUT I DO NOT INTEND TO MOVE IN FOR A FEW MONTHS AT LEAST. CAN I STILL CLAIM THE FIRST TIME BUYERS TAX CREDIT?
Yes, you should be able to get the credit as long as you havn’t owned a home in the last three years. You are taking on the benefits and burdens of ownership. And your intent is to possess the house and live in it. Check with a CPA just to be safe though.
Alex – We are US residents (not citizens) who pay US taxes and have just bought our first home in the US. I was just wondering if we would qualify?
If you pay taxes, you should qualify for the credit. (Remember that whole Boston Tea Party thing?) Only non-resident aliens are disqualified.
Sandy – I have two questions – is the $8,000 tax credit an actually check that is sent to the buyers? Also, what is the limit a person can make to qualify for the credit.
Who said you could ask 2 questions? …just kidding. 🙂 Yes, you get a check if you claim it against your 2008 return. And you also get a check if you claim it in 2009, but it will come to you along with your tax return check. The credit phases out for incomes between $75,000 to $95,000 for a single filer, and $150,000 to $170,000 for couples.
Ria – I purchased a house with my dad this year however my name was not on the mortgage, only the deed of trust. My dad is not able to claim the tax credit due to his income. Would I be eligible to claim this credit if I am not on the mortgage but only the deed of trust?
I don’t think so. I believe you have to be on both documents. You should check with a CPA though to be sure.
Amanda – Is there any way that you can tell me if Contract-for-deed houses qualify for this credit as well? We have an excellent opportunity to get a new house this way and so far the legal side looks good as well as the mortgage rate. We were a little worried about how the IRS defined home purchase. Any help would be appreciated.
Yes, they do. As long as you take on the “benefits and burdens” of home ownership, you should get the credit. No problems. See more on the IRS fact page.
Kathy – My daughter doesn’t qualify for a loan, so we are going to use the equity in our house to pay for her house, in her name. So that would be a cash purchase and she will have to pay us back. My assumption is she would get the credit, but my question is, would there be a repercussion by us giving her the loan instead of a mortgage company? Thanks!
From what I can tell, the IRS doesn’t care where you get the money to buy the home. And since you’re buying it outright, no one is going to turn your daughter down. I would see a CPA just to be sure though. And my other concern would be that you are putting your home in jeopardy by creating a HELOC or Equity Loan to fund what should be your daughter’s purchase.