On November 6, the first time home buyer tax credit was enhanced and updated. Here are the changes to the 2009 version of the first time home buyer tax credit resulting from the new legislation:
- Deadline extended: Now you have until April 30, 2010 to establish a contract to purchase a home and June 30, 2010 to close on that home in order to receive the credit.
- Income limits increased: The phaseout of the credit does not begin until incomes reach $125,000 (single) and $225,000 (married filing jointly).
- Maximum price established: The credit is not available for homes which sell for more than $800,000.
Other key considerations remain the same:
- Credit value unchanged: $8,000 or 10% of the purchase price, whichever is lower.
- Pick your favorite tax return: You can file for the credit in either the year of sale of the prior year. (For example, if you buy a home on November 30, 2009, you can file for the credit on your 2009 or 2008 return. If you buy a home on April 3, 2010, you can file on your 2009 or 2010 return.)
- Still not for flippers: You have to own the home and use it as your principal residence for at least three years or you will forfeit the credit.
But wait, there’s more: the first time home buyer tax credit isn’t just first time home buyers anymore! The new law establishes a credit for people who have owned a home for at least five years. If you’ve owned a home for four years and want to take advantage of the credit, sorry, but there is no credit for you. In your comments below, please remember that I am only the messenger.
Key Points on the Not a First Time Home Buyer Tax Credit (Replacement House Credit):
- Better not have just got there: You must have lived in a home you own for at least five straight of the previous eight years.
- Lower credit: Only $6,500 for this credit.
All the other key points, including the need to own your next home for at least three years, income restrictions, expiration date, and filing requirements are the same as they are for the first time home buyer tax credit.
If you purchased your home during 2009 but before November 6, 2009, read about the 2009 version of the first time home buyer tax credit.
If you purchased your home during 2008 and after April 9, 2008, read about the 2008 version of the first time home buyer tax credit.
If you purchased your home after June 30, 2005 and before April 10, 2008 and want to know why you get nothing, not even the chance to take part in the new part of the credit, read this article where you can gather precious little insight as to the government’s thinking. However, it’s a good place to vent.
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Michael: I qualify for the expanded FTHTC, but am considering purchase of a mobile home. Is the new $6,500 tax credit subject to the same downward pro-rating as the original credit? That is, is it a flat $6,500, or ten percent of the purchase price?
Thanks,
@MikeY: Yes, it’s limited to 10% of the purchase price with a $6,500 maximum.
Please help. Here is my situation. We bought our house Aug. 2001. Sept. 2006 we moved out and our property became a rental. We still own the home and it’s been a rental for over 3 years now. Since Sept. 2006 we have been living with my in-laws and did not purchase another home. Do we qualify for the $8K credit since the house has not been our primary residence for more than 3 years? Or do we instead qualify for the $6500 credit being that we lived in that house for 5 years straight? Or do we NOT qualify at all for any credit since we never sold the property?
@Aurora: Since you have not lived in a principle residence you own in more than three years, you qualify for the $8,000 first time home buyer tax credit.
Thanks Michael. I really appreciate your help. By chance do you know anyone in San Francisco/Bay Area that we can trust to do our taxes this year?
@Aurora: Honestly, no. However, I have tax preparation clients from throughout the country (including California) and I’d welcome the opportunity to welcome you to the Total Candor family. You can read more about our Tax Prep services here.
Hi Michael,
My question is on the income limit. My income is $90k and
I got the deed on Oct 27, 2009. Is there any way I can get
the full $8000 tax credit by the extended bill?
Thanks,
@Jade: Nope. Sorry, just a few days too early.
Hi Michael,
Thanks for your reply. In fact, my fiancee is considering buying
another house and we are planning to get married next year.
If he buys the house before we get married next year, is he qualified for the tax credit? Or he need to close before the end of this year?
@Jade: If your fiance buys a new house (and qualifies based on income and previous homeownership) before he marries you, than he’ll get the credit.
Hi Michael,
We bought our new home in May 2009.
The home we moved out of we have owned
for ten years. (still haven’t been able to sell
it) Are we eligible for the new 6500 credit?
Thanks for any help!
Hi Wendy. Unfortunately not since you purchased your home back in May. The existing home buyer tax credit is only for homes purchased from November 6, 2009 through April 30, 2010.
thank you!
Hello Michael: Could you spare a few words of advice? I qualify for the $6K homebuyer tax credit and I’m trying to decide if that alone is worth my seeking a mortgage of about $60K on a condo property. My current residence is an old mobile home that is essentially falling apart at the seams, so I do need an upgrade, but at my age (65), and my only income being a modest (under $20K) pension, and no current debts, I’m not sure if I should jump at the tax credit rebate or not. Paying a 30-year mortgage plus condo fees would be only about half as much as monthly rent, but could there be some problematic factor I’m overlooking? Thanks for any thoughts.
@MikeY: There are many factors to consider in purchasing a home. The credit is but one of them and often only relevant for someone truly on the fence. Only you can quantify how much you need “an upgrade.” I assume the rent you refer to is on your current place. If so, and you can buy a place that’s nicer and half as costly plus get the credit, that would seem to imply the move is a good idea. The one thing you would need to consider is maintenance expenses but that shouldn’t close the gap you describe too significantly.
Hello Michael,
We are building a new modular home as a replacement home for the old run down home we have lived in for 9 years. The old home will no longer be a dwelling, and the new home will be our principal residence. The new home is built on land we have owned for 9 years. If all other timelines and requirements are met, will we be eligible for the $6500 tax credit?
Thanks
@Mike S: I strongly believe so, but suggest double-checking with the IRS to be sure.
Thanks so much for the quick response!
I think I will make an appointment with the local IRS office, I have tried calling but have not been able to speak with a ‘real person’ on this question.
Thanks again,
Mike
@Mike S: You bet! Good luck (on both the appointment and the house!)
Michael,
In Texas can we do a FHA Kiddie Condo for our daughter (freshman at a major university) and utilize (monetize) her 8K credit to cover the 3.5% down along with other costs at time of closing (spring 2010)? She’s 18 and has never been employed or filed a tax return – the way I read the 8K credit, she doesn’t have to have a job or show income – just file a 2010 return on April 15th, 2011 and get the full 8K. Only downside is we cannot claim her as an exemption on our 2010 tax return or possibly ever again. CPA says the 8K credit won’t work in this case, he said kids are technically dependents until age 24 anyway plus he added our daughter has no income – I think he’s wrong. Toughest part is getting her approved in time with no credit history – just paid her first CC bill in full this month. Thanks for any insight?
@Dave: Lots of questions in there . . . I’ll try to hit them all.
You can’t claim the credit before you buy the home, so it won’t be part of the downpayment.
Once your daughter can provide for at least of her own support, she can be claimed on her own (cease to be your dependent). If the facts change in a future year, she theoretically could become your dependent again, (if she’s still under 24 and a full-time student at that time).
Having no income is irrelevant for purposes of her credit qualification but, as you point out, could make it extremely difficult for her to find financing. Still, you could co-sign the loan and pay for the overwhelming majority of the housing costs, so long as she’s a part-owner, part-contributor (can be a small amount) and she lives there as her principle residence for at least three years.
Michael thanks,
Talked to a more informed CPA today on combining the 8K tax credit with an FHA “Kiddie Condo” loan, he read the tax code chapter and verse and proved it’s completely acceptable under IRS provisions. He pointed out the only downside on going for the 8K credit is we loose both her exemption of $900 (25% bracket), and her education credit which he calculates is around $2,500 – so the 8K is quickly reduced to $4,600. He was a little concerned about the prospect of her being reclaimed as an exemption by us after her being independent for 1 year just to claim the 8K credit, but added there was nothing stated in the code that prohibits her from going back to dependent status and us claiming her again. Turns out you were spot on with regard to getting the 8K credit at time of close – apparantly some states were allowed to make provisions in advance and borrow against (i.e. bridge loans) the credit refund to apply said cash at closing. Texas officially abandoned that practice/program early this year. The only other question is how to properly report the rental income and deduct the mortgage interest, I didn’t get that far with the CPA. Sorry for such a long topic. Regards!
Michael,
Just to be clear, the “more informed CPA” comment was referring to the difference between the two CPA’s I spoke with here in Texas.
@Dave: Glad your “better of the two” local CPAs gave you better insight and glad to hear that it will still work, should you choose to pursue it. Thanks for sharing and stay in touch!
Michael,
Hate to say it, but just called the IRS and the agent said the recent changes from Nov 6th, 2009 will be on the new form 5405 coming out Dec 28th, 2009, and will have new verbage that prevents anyone age 18-23 who is “ELIGIBLE TO BE CLAIMED AS A DEPENDENT” from receiving the 8K first time credit. Not just chooses to be claimed, but eligible to be claimed. Big difference. Agent also said they are now auditing 92% of all 8K first time H.B. claims. She said along with form 5405, you must have a settlement statement (closing statement) or HUD-1 or RESPA statement sheet, and if available but not required a copy of the filed deed or certificate of occupancy. She said this is all driven by fraud because 8K checks went to persons only 4 yrs of age.
@Dave: This doesn’t surprise me; it’s why I said, in my first response to you above, “Once your daughter can provide for at least of her own support, she can be claimed on her own (cease to be your dependent).” Indeed, the opposite is also true, as you discovered today.
Fraud has been a huge problem with this program from the outset, so I’m glad they’re investigating closely.
I closed on my home in December 2009 in Indiana. I went through a private bank for a FHA loan and they work with the Fed Gov on a down payment program. I qualify for the refundable $8000 tax credit and plan to file on my taxes in 2010. My question is if or how the down payment may factor on my taxes? Could it be deducted from my $8000 tax credit?
@Nina: Your down payment isn’t a reportable item for tax purposes. It’s what creates equity in your home – nothing else. It’s no different than putting a down payment on a car. Your $8,000 tax credit is not income for tax purposes either.
Hello Michael,
My wife and I purchased a home in 2003 and lived in it until we purchased our second home in October 2009. Based on what I have read, we do not qualify for the Homebuyer Tax Credit since the home was purchased before November 6, 2009. Is this correct? If so, what can I do (other than claiming my closing costs) to get a little extra money?
Thanks
@Colby: As it relates to the credit, nothing. Sorry.
My mother died several years ago. Her home is part of a revocable living trust (became irrevocable when she died). I am the trustee and I and my three brothers are equal beneficiaries. My youngest brother is buying the house.
Does he qualify for the first time home buyers income tax credit? I read somewhere about not being eligible if purchasing from a close relative.
Thank you for your help!
Mary
@Mary: In effect, your youngest brother would be inheriting 1/3 of the house (not buying it). The other two-thirds he is buying from siblings. It does not appear that siblings are excluded as related parties. However, the fact that he already owns 1/3 of the home would bother me.
As such, i can’t tell you it’s a definite “no,” more of a “most likely no.” I’d encourage you to research farther, by either engaging a CPA or trying to work with someone at the IRS. Good luck!
Michael,
My son and daughter-in-law just purchased first-time home in November, 2009. I believe my son is the only one on the loan and deed. He went to H&R Block to file his return and was told that he can only receive $4000 of the $8000 credit because he is filing his return “married, filing separately”. I have not read anywhere about this stipulation. Your comments please…..
@Susan: That’s correct. Easy fix: file jointly and get the whole $8K.
Hello, We are considering a lease to own property. If we close the house by April 30, can we still apply for the tax credit?
@Kamesha: My understanding is yes, if the title transfers by June 30, 2010.
Can you help? I bought my house in June 2001 and after my divorce, my ex-husband refinanced to take me off of the mortgage in August 2007. I am recently remarried and trying to purchase a home with my husband. My husband has owned a home within the last three years. Would we qualify for the $6500 tax credit? Or would we not qualify at all?
@Robyn: Because your husband has owned a home in the last three years, you won’t qualify for the first time home buyer tax credit. If your husband has owned and lived in the home for at least five years of the past eight years, you might qualify for the $6,500 of the credit but you’d need to further research.
My husband and I bought our home in 2005. One the PVA site, it says 06/30/2005. Do we qualify for the tax credit if we get a contract by April 30th and close on another home June 30th?
Any help is appreciated.
@Christi: If you purchased your current home on 6/30/05 and close on another on 6/30/10 that is under contract by 4/30/10 then I believe you just barely qualify. If it were me, I’d verify with the IRS first.
i bought my first house in 2007 do i qualify for any tax credit?
@Angela: No.
My Finace\’ and I are first time homw buyers. If we sign a lease to purchase agreement for a year would will qualify for the tax credit? even though we are renting it for 12 months or until or credit score is raised enough to purchase the home. We are working with a company that is helping us raise our fica scores. I just didnt know because we weren\’t actually financing for another 6 or 7 months if we would qualify for the tax credit. thanks
@Jenn: 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)
I lived in my mobile for 22 years. I had the old mobile removed and purchased a new one the end of Sept. 2009. I was not able to move into my new mobile, due to land prep and getting my mobile ready for occupancy, until the end of November. Would I qualify for the $6500 tax rebate.
@Martha: Candidly, you seem to fall into a bit of a “grey area.” If you had purchased and closed on it before 11/6, you wouldn’t qualify – that’s what makes me say “No.” But you didn’t move into the home until after 11/6 because it wasn’t ready, which makes me say “Yes.” I’m afraid you’re going to have to dig a little deeper and have a chat with your friendly IRS office. Try to make the case that you were unable (as opposed to unwilling) to move in until after 11/6. Good luck!
Thanks, Michael. LOL, been in a gray area most of my life. Thanks for your input.
My wife and I meet all the requirements and we’re having a home built, it’s scheduled to be completed in the middle of June. The problem is, the county in which we’re building does not issue certificates of occupancy. When I spoke to the IRS they insisted we must prove we’ve moved into the home. We’ve already closed on the loan, have a binding contract in place and have a HUD1 statement. Any suggestions as to a suitable substitute for a certificate of occupancy?
@Russ: A few thoughts: 1) Call the IRS again and see what ideas they have if you can’t get a CO. 2) Ask the builder to write you a letter stating the date of completion. 3) Take a picture of you in front of the home holding a newspaper on move-in day.
My daughter and her husband are going to buy a home from us. We have owned the home since
1997.My daughter has rented the home form us since 2006. This will be the first home they bought. will they qualify for the 8000.00 credit.There realtor said no because they are family,