After weeks of intense negotiation, the new first time home buyer tax credit of $8,000 was signed into law this week. Here are some first time home buyer tax credit FAQs:
Will I qualify for the credit?
You qualify for the full credit if:
- You close on a home between January 1, 2009 and December 1, 2009 AND
- You haven’t owned a home in at least three years AND
- Your adjusted gross income is less than $75,000 (single) or $150,000 (married).
How much is the first time home buyer tax credit worth?
The credit is for 10% of the purchase price of the home, up to a maximum of $8,000.
What if I wouldn’t owe $8,000 in tax?
Not a problem. The first time home buyer credit is refundable, meaning that you get the money even if it exceeds what your tax liability would have otherwise been.
Do I have to pay back this money?
No. You keep the $8,000.
Really?
Yes, unless you sell the home within three years.
How is this different from the previous version of the home buyer tax credit?
In several ways. Read more about the 2008 version of the first-time home buyer tax credit and note that it
- Has a maximum value of $7,500.
- Must be paid back over 15 years.
- Is applicable to homes purchased after April 9, 2008 and before July 1, 2009.
The new credit seems better. If I qualify for both, why would choose the old one?
You wouldn’t.
What other questions do you have? Comments? Happy to see this credit because you’re about to buy a home? Ticked off because you bought one in late 2008 or even 2007? Do ask. Do tell.
Update: Here are your first time home buyer tax credit options if you buy a home after April 15, 2009.
Second update: Here are the new rules for those who buy their homes after November 6, 2009.
Loading ...
@Chad. Unfortunately, you are correct. Here is more information about the newly enacted enhanced home buyer tax credit.
regarding the $800,000 maximum for the tax credit, how does that number work? is that for the real estate? how about personal property? so if i bought a place for $825k, and there was $40k of personal property in it, would that be $785k for tax credit purposes? how about broker fees? is it the figure reported to MLS? thx
@Stuart: Haven’t seen any guidance on your issues, but why not structure the personal property as a separate transaction bringing your purchase price below $800K?
So, if I owe nothing come tax time, and instead get a check from Uncle Sam, $8k will be added to my return?
@Andrew: Precisely.
What about lease to own, do the tax credit count for that?
@Jessica: My understanding is that it count if and when the title transfers to the purchaser.
Please explain the reason why you are unable to purchase a home from a family member and still be eligible for the tax credit?
Thanks
@CJ: Two possible questions: 1) Why did Congress prohibit purchases from family members from qualifying for the tax credit? 2.) Michael, why do you say you can’t buy your home from a family member?
Answers: 1.) Fear of fraud
2. Because Congress specifically prohibited such transactions because of see # 1.
Dear Michael,
I have a three part question:
My daughter does not qualify for a loan that is large enough to buy a home in her area. She is able to make a mortgage payment (+interest & taxes) that is greater than that for which she qualifies, however, so my husband and I bought a house “for” her in June ‘09.
She holds the”benefits and burdens” of ownership: she is the sole occupant of the house; it is her primary residence;she is responsible for all maintenance, repairs, and improvements; she pays the mortgage and interest; she pays property taxes and insurance. She does not, however, hold title and her name is not on the mortgage.
It appears that she can take the mortgage interest deduction, according to Treasury Regulation Sec. 1.163-1(b) “Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even though the taxpayer is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness.” Since she is able to enjoy the benefit of this tax deduction it seems that, as an equitable homeowner, she should be able to enjoy the other tax benefits of home ownership as well.
Do you think she qualifies for the First-Time Homebuyer Credit? This is her first home. My husband and I do not plan to take the credit.
2. Do you believe it would be beneficial to add her name to the title? Could this help her ability to qualify for the credit, or could it hinder it by making it look as if she bought a house from a family member.
3. Do you see any benefits of or problems in giving her power of attorney on the mortgage?
We are not trying to undermine the IRS; we are simply tying to give our daughter the best chance at qualifying for the credit.
Thank you for your response to this lengthy query.
-Ane
@Ane: 1.) She doesn’t qualify for the credit because she didn’t buy a home. If she had been a co-owner at the beginning, she’d have qualified for the full credit. Unfortunately, you can’t go back now.
2.) No, though there may be other reasons to add her to the title. For example, should something happen to you and your husband, passing the home to her outside your estate/will.
3.) Not sure what you mean here but, by and large, POA is useful so long as it granted to someone you trust implicitly and who you have discussed your wishes.
Sorry I don’t have better news for you.
Well, not exactly the news we were hoping for, but that’s the way it goes sometimes! Thank you very much for your response.
If my husband and I both purchased a rental property from my parents, can my husband claim the tax credit? I understand that I couldn’t but since he’s a first time homebuyer and not blood related to my parents, could he be able to claim it? Would filing seperately need to take place?
@Kaci: Unfortunately not. If you buy it from your parents both you and your husband are excluded from taking the credit, regardless of how you file.
Hi. I found a house this week that I would like to rent so that I can leave my apartment. I would not be leaving until May, so there is some time. The owner of the house is getting married and is willing to lease the house to someone who she trusts. She is wanting to sell it but also realizes that she can’t afford to sell it at a profit due to the market. A family member of mine asked me if there was any way that I could make a deal with this lady to purchase the house now instead of later as a lease purchase. My initial response was “no” due to my finances, but then I remembered that the Tax Credit was extended to April 30, 2010. I do not think I could qualify for a typical mortgage now nor do I have 3% down. Do you have any suggestions? Could I use the tax credit as a promissory note for a down? I don’t know….very confused. I just hate to lose out on the tax credit. I appreciate any assistance.
@Sheri: See if she would be willing to sell it for what it’s worth. If not, you’ll save yourself a lot of work. No program makes it wise to pay more than something is worth. If she is willing to sell at a fair value, then call a bank/mortgage broker to see what flexibility you might have to get an FHA loan. The rules have been a moving target with regard to using the credit as “bridge loan.” Originally, it was not allowed. Then it was. Then it wasn’t. Your ability to get the note may depend on how determined you are to come up with the 3%. For what it’s worth, if you can’t come up with 3% of the home purchase price, in my opinion, you face long odds for good reason – you won’t have much skin in the game and as such become a more likely target for foreclosure down the road. Good luck!
Buyers own their current property and have lived there for more than the last 5 years. They have current title to their home as a Revocable Living Trust. If they purchase another home by the necessary deadlines, can they take title in the new property the same way and still qualify for the $6500 tax credit?
@Tina: I’m unaware of any issues regarding the facts you presented.
This makes no sense. I bought my home from my deceased grandfathers estate. I paid appraised value for the home and it was more than the taxed value. I went and got a loan from a local bank and did everything the same as if i bought it from a stranger, yet i don’t qualify. Seems like another screwing from the goverment.
If I qualify for the $8,000 tax credit for a home purchased in February, 2010, will I also get a 1099 for the $8,000?
I purchased a home in December of 2007. Do I qualify for a tax credit?
@LuAnn: No, you won’t. The credit isn’t considered income.
@Hortaa: No, you won’t qualify since you purchased a home before the law went into effect.
Question,
The house I am going to buy is in a trust. This was my fathers house, but he passed and now its in the trust. I am going to buy this house from the trust. I will pay my brother and sister what the house is worth. Will I be elgible to buy this house?
David
@David: Seen opinions on this both way and haven’t formed my own. Best to contact IRS directly. Good luck!
In response to Ane,
Here’s a Q & A from the IRS on this topic:
Q. Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer’s payment obligations?
A. If the taxpayer obtains the “benefits and burdens” of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property. (New 7/2/09)
Michael is wrong. This is directly from the IRS! Your daughter should qualify for the credit.
@Rebecca: If Ane’s daughter had purchased a home through a seller-financed arrangement, the text from the IRS you pasted above would be relevant. Unfortunately for Ane’s daughter, that’s not what happened. Ane’s parents bought a home in a traditional way, presumably with a standard bank loan. Ane’s daughter did not buy a house, through a seller-financed arrangement or otherwise,
Like all other responses, I give my best opinion and recommend people not take it as gospel, but as an educated opinion to be verified. If someone shows me I made a mistake, I’ll admit it. Rebecca, you haven’t done that because the Q & A you copied does not mirror the facts of Ane’s daughter’s case.
We built a house in 2008 and signed the closing documents on 12-31-08 and we claimed the first time home buyer credit on our 2008 return, but it is the one that has to be paid back. Could we file an amended return and file the 2009 first time home buyer credit that does not have to be paid back and is $500 more than the one we claimed?
@Brandi: When did you get your certificate of occupancy and move in to your home? If you did so in 2009, then you should be able to do what you propose (amend and refile). If in 2008, then you won’t qualify for the richer 2009 version.
I don’t believe we were required to have a certificate of occupancy. The closing papers may have some type of statement to that effect, not sure.
Hi Michael,
I purchased my first home in July of 08 and did not file the credit on my 08 return. I refinaced in July of 09 paid a point and everything, would I qualify for the 09 credit?
Thanks for you help.
@Valentino: No, refinancing doesn’t change your qualification status. You may qualify for the 2008 credit depending on your other facts.
Thanks for you response, very nice of you to do this for everyone.
If I understand correctly the 08 credit is a long term no intrest loan that “must be” paid back. Please correct me if im wrong. I’m just trying to find a way to get the “free” money, as greedy as that sounds…. haha
Guess all of us who kept the faith in the market and bout 5 months before the credit get the short end of the stick.
@Valentino: Correct, you’d have to pay the loan back. The “must be” isn’t in quotes.
My wife and I are married but separated for 6 years now. She is not on my mortgage, and she just bought her own condo paying cash in December 2009 and owns it. I file our taxes as married joint still. Is there going to be an unforseen problem? She met all the other criteria for buying and is eligable. I was confused because I own my house and she owns hers, will I have to prove she’s not on my mortgage even though we’re not divorced yet? Or is this gonna be a huge problem in my tax return? I usually get about $3,000 abck every year and claim her and my son as a dependent, and that’s it.
@KB: She won’t be able to claim the credit because her current husband owns a home.
Michael,
My husband and I have a primary house and we bought a house in Nov 2009 as a renting property. We are currently leasing it.
Do we get the credit on that renting property?
Thanks
@Natalie: Assuming you mean that you are leasing it to someone else who lives there, then no, since it’s not your primary residence.
I am renting to own for 2 years now do I qualify for the credit. I have a signed contract that states I will have the title when the house is paid in full I guess you can say a seller financed agreement. Help me understand.
@Tartiana: From the IRS web site (and I think someone else copied it above):
Q. Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer’s payment obligations?
A. If the taxpayer obtains the “benefits and burdens” of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property. (7/2/09)
We have a sticky scenario… My ex-wife closed on a home 11-25-08. She had owned in 2004, but wasn’t on a mortgage note from that point until closing on 11-25-2008. I know based on this that she qualifies for the credit, but she was on title (only title, not on note), on two homes that I was the mortgagee when we were married. What’s the verdict?
@Karl: The mortgage is not relevant here. If your ex-wife’s name was on the title anytime during the three years before 11-25-08, she’s disqualified. There are other key facts not reported in your note (like the date of divorce and the time period for which you/her may have sold a home), so she still might not qualify even if she passes the test I listed in my second sentence.
Michael,
I bought a house in 2007 for my business. One of my business partners was in the title too. This property was rented out to the business and we sold it in 2008. If I buy a new house before April, 2010, would I qualify for the credit since my previous property was a rental and not my primary residence? For the record, in 2007 my business partner declared the house on his tax return (he also lived in the property), I didn’t. In 2008 though, I declared it.
@Javier: Have you ever lived in this house? If not, then you’ve never owned a home you lived in and are considered a first time home buyer.