The American Recovery and Reinvestment Act of 2009 provides a number of items meant to stimulate the economy, and the tax credit of up to $8,000 for first-time home buyers may be the most beneficial to individuals. Although this is a significant tax benefit, not everyone will qualify, and there is only a relatively small window in which you can take advantage.
Highlights of the Tax Credit
- The tax credit is for first-time home buyers only.
- The tax credit does not have to be repaid.
- The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
- The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
- Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
What it Means to be a First-Time Home Buyer
Luckily, this doesn’t mean this house has to be the first house you’ve ever purchased in your life. The law considers a first-time home buyer as someone who has not owned a principal residence during the previous three years before the current purchase. So, you may have purchased a primary residence many years ago and have been renting for the past few years and still qualify under this provision.
Does This Money Have to Be Paid Back?
Unlike the original tax credit that was passed back in July of 2008, this is a true tax credit and not just an interest-free loan. In the original plan, you were essentially getting an interest free loan up front and then had to repay the money over time. This new law changes that so it is true tax credit, but some restrictions do apply.
In order to avoid paying any of the tax credit money back, home buyers must use the home as a principal residence for at least three years. If you receive the credit and were to leave or sell the home before living in it for three years, you may be on the hook to repay a portion of, or the entire credit amount. Make sure you seek professional tax advice when considering this credit and your home purchase plans.
How to Apply for the Credit
Applying for the credit is easy. To claim your tax credit on your federal tax return, you will want to complete IRS Form 5405 to determine your tax credit amount. Once the amount of the credit has been determined, that amount goes on line 69 of your regular 1040 income tax return. No other qualifications or forms need to be filled out, but you should consult your tax preparer before claiming the credit to make sure you’re qualified.
the last day you can buy a house and still qualify for this tax credit is November 30, 2009. This means the transaction must be completed and the closing finished by this date. There is still some time to qualify, but make sure you plan ahead and get your closing date scheduled before this deadline if you wish to take advantage of the tax credit.