Frequently asked questions about the Home Buyer Tax Credit
A qualified 1st time home buyer can get a tax credit of up to $8000 for purchasing a home after January 1, 2009 and before December 1, 2009 authorized by The American Recovery and REinvestment Act of 2009.
Basic information abou the tax credit will be provided in the following questions and answers. If you have more detailed questions, we strongly encourage you to consult a qualified tax advisor or legal specialist about your unique state of affairs.
1. Who is eligible to apply for the tax credit?
Eligible for the tax credit are the first-time home buyers purchasing any kind of home-new or resale. To qualify for the tax credit, a home buy must occur on or later than January 1, 2009 and sooner than December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.
2. The definition of a first-time home buyer is?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence for the duration of the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.
For illustration, if you have not owned a home in the previous three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried multiparty purchasers could allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
3. The amount of the tax credit is determined how?
The tax credit is equal to 10 percent of the home�s purchase price up to a maximum of $8,000.
4. Are there any income limits for claiming the tax credit?
All right. The earnings limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to nothing for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
5. What is "modified adjusted gross income"?
Modified adjusted gross income otherwise MAGI is defined by the IRS. To get it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus specific deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of incselecteds wages, salaries, interest ingive it some thoughte, dividends anin place ofaadditionall gains.
6. If my modified adjusted gross income (MAGI) is exceeding the limit, do I qualify for any tax credit?
Maybe. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phase out limits.
7. How is the partial credit determined?
Just as an illustration, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by the phase out range of $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.
Here�s an alternative case in point: Assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer�s income exceeds $75,000 by $13,000. Dividing $13,000 by the phase out range of $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.
Please remember that these examples are intended to provide a broad idea of how the tax credit might be applied in various circumstances. You should always consult your tax advisor for information involving to your individual circumstances.
8. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
The most major difference is that this tax credit does not have to be repaid. Because it had to be repaid, the prior "credit" was in essence an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.
9. How do I claim the tax credit? Do I need to complete a form or application?
It si very simple to participate in the tax credit. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase.
10. What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence spirit qualify in place of the confidence. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also recognized as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you might qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.
11. I read that the tax credit is "refundable." What does that mean?
12. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
13. Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
14. Can I retrieve the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
15. I live in the District of Columbia. Can I apply for both the Washington, D.C. First-time home buyer credit and this new credit?
16. I am not a U.S. Citizen. Can I claim the tax credit?
17. Is a tax credit the same as a tax deduction?
18. I bought a home in 2008. Do I qualify for this credit?
19. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
20. If I�m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
21. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
HURRY: THE DEADLINE ENDS
November 30, 2009
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