Homeowners know that mortgage interest provides a valuable tax deduction, but this year the IRS has sweetened the pot for first time home buyers. The First-Time Homebuyer Credit provides incentive for those who haven’t owned a home in the past three years to buy one before July 1, 2009.
How to Take Advantage of the First-Time Homebuyer Credit
- Buy a house between now (back to April 8, 2008) and before July 1, 2009.
– The credit is only good for the purchase of a main home located in the United States.
– Vacation homes and rental property are NOT eligible.
– For a custom built home, the purchase date is the first date you occupy the home.
- Only first-time homebuyers or those who haven’t owned a home in the three years prior to a purchase qualify for the credit.
- File the new IRS Form 5405, First-Time Homebuyer Credit on an original or amended 2008 return, or on a 2009 return.
– If you buy the home in 2008, you claim the first-time homebuyer credit on your 2008 tax return.
– If you buy the home before July 1, 2009, you can claim the credit on 2008 return, or on your 2009 return.
This credit not only reduces your tax bill dollar for dollar, it’s also fully refundable, which means it can be paid out even if you don’t owe any taxes or the credit is more than you owe.
How Much is the Credit?
The First-Time Homebuyer Credit is 10% of the purchase price of the home, with a maximum available credit of $7,500. It’s the same whether you’re single or married filing jointly. However, the limit is only $3,750 for a married person filing a separate return. If your home cost $75,000 or more, you’ll likely qualify for the maximum credit, but it’s subject to phase-outs (reductions) at incomes over $75,000 .
What’s the Catch?
There’s always got to be a catch, right? In this case it’s that the credit is actually more like an interest-free loan than a true credit. Taxpayers have to repay the credit in equal installments over fifteen years starting the second year after the year the credit is claimed.
To find out if you qualify, and to learn the other rules that may impact your eligibility and decision to claim the First-Time Homebuyer Credit, check out IRS.gov or call your friendly local tax professional!
NOTE: The information here refers to what is already in place. Plans for a more permissive and larger ($15,000 maximum) credit have passed the Senate and could become a reality if the economic stimulus packages is passed into law this week. If those measures pass, the IRS will need to state just how the credit will be administrered.