New legislation, the Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts. The new law:
Extends deadlines for purchasing and closing on a home.
Authorizes the credit for long-time homeowners buying a replacement principal residence.
Raises the income limitations for homeowners claiming the credit.
Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.
For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased.
People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after Nov. 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before Nov. 6, 2009.
IR-2009-14, Feb. 25, 2009
WASHINGTON — The Internal Revenue Service announced today
that taxpayers who qualify for the first-time homebuyer credit
and purchase a home this year before Dec. 1 have a special
option available for claiming the tax credit either on their
2008 tax returns due April 15 or on their 2009 tax returns next
Qualifying taxpayers who buy a home this year before Dec. 1
can get up to $8,000, or $4,000 for married filing separately.
“For first-time homebuyers this year, this special feature
can put money in their pockets right now rather than waiting
another year to claim the tax credit," said IRS
Commissioner Doug Shulman. “This important change gives
qualifying homebuyers cash they do not have to pay back.”
The IRS has posted a revised version of Form 5405, First-Time
Homebuyer Credit, on IRS.gov. The revised form incorporates
provisions from the American Recovery and Reinvestment Act of
2009. The instructions to the revised Form 5405 provide
additional information on who can and cannot claim the credit,
income limitations and repayment of the credit.
This year, qualifying taxpayers who buy a home before Dec. 1,
2009, can claim the credit on either their 2008 or 2009 tax
returns. They do not have to repay the credit, provided the home
remains their main home for 36 months after the purchase date. They
can claim 10 percent of the purchase price up to $8,000, or
$4,000 for married individuals filing separately.
The amount of the credit begins to phase out for taxpayers
whose adjusted gross income is more than $75,000, or $150,000
for joint filers.
For purposes of the credit, you are considered to be a
first-time homebuyer if you, and your spouse if you are married,
did not own any other main home during the three-year period
ending on the date of purchase.
The IRS also alerted taxpayers that the new law does not
affect people who purchased a home after April 8, 2008, and on
or before Dec. 31, 2008. For these taxpayers who are claiming
the credit on their 2008 tax returns, the maximum credit remains
10 percent of the purchase price, up to $7,500, or $3,750 for
married individuals filing separately. In addition, the credit
for these 2008 purchases must be repaid in 15 equal installments
over 15 years, beginning with the 2010 tax year.
Get Irs Form 5405
NOTE: For first-time homebuyers who bought in
2008, the maximum credit is $7,500 and must be paid back over a
period of 15 years.
In 2008, Congress approved a tax credit for
first-time homebuyers that can be worth up to $7,500. The
credit, however, acts more like a no-interest loan because it must
be repaid to the government over 15 years.
The First-Time Homebuyer Credit can be claimed on Form
, which is filed with your 2008 or 2009 federal tax
has instructions for non-married persons
who co-own a house and want to take the credit.
For the who, what and how, take a look at the
following questions and answers:
Q: What is the credit?
A: The First Time Homebuyer Credit is a new tax credit included
in the recently enacted Housing and Economic Recovery Act of 2008.
The credit operates like an interest free loan because it must be
repaid over a 15-year period.
Q: How much is the credit?
A: The credit is 10 percent of the purchase of the home, with a
maximum available credit of $7,500 for either a single taxpayer or
a married couple filing a joint return; $3,750 for married persons
filing separate returns. The full credit is available for homes
costing $75,000 or more.
Q. Which home purchases qualify for the first-time
A. Only the purchase of a main home located in the United
States qualifies. You must buy the home after April 8, 2008, and
before July 1, 2009. For a home that you construct, the purchase
date is the first date you occupy the home.
Taxpayers who owned a main home at any time during the three
years prior to the date of purchase are not eligible for the
credit. This means that first-time homebuyers and those who have
not owned a home in the three years prior to a purchase can
qualify for the credit. If you make an eligible purchase in 2008,
you claim the first-time homebuyer credit on your 2008 tax return.
For an eligible purchase in 2009, you can choose to claim the
credit on either your 2008 (or amended 2008 return) or 2009
Q: When must I pay back the credit?
A: You must begin repaying the loan the second year after
claiming the credit. For example, if you properly claim the
maximum available credit of $7,500 on your 2008 federal tax
return, you must begin repaying the credit by including
one-fifteenth of this amount, or $500, as an additional tax on
your 2010 federal tax return. Normally, $500 will be due each year
from 2010 to 2024.
Q. How is the credit repaid?
A. The first-time homebuyer credit is similar to a 15-year
interest-free loan. It is repaid in 15 equal annual
installments beginning with the second tax year after the year the
credit is claimed. You may need to adjust your withholding or make
quarterly estimated tax payments to ensure you are not
Some exceptions apply to the repayment rule:
If you die, any remaining annual installments are not due.
If you filed a joint return and then you die, your surviving
spouse would be required to repay his or her half of the
remaining repayment amount.
If you stop using the home as your main home, all remaining
annual installments become due on the return for the year
that happens. This includes situations where the main home
becomes a vacation home or is converted to business or
rental property. There are special rules for involuntary
conversions. Taxpayers are urged to consult a
professional to determine the tax consequences of an
If you sell your home, all remaining annual installments
become due on the return for the year of sale. The repayment
is limited to the amount of gain on the sale, if the home is
sold to an unrelated taxpayer. If there is no gain or if
there is a loss on the sale, the remaining annual
installments may be reduced or even eliminated. Taxpayers
are urged to consult a professional to determine the tax
consequences of a sale.
If you transfer your home to your spouse, or, as part of a
divorce settlement, to your former spouse, that person is
responsible for making all subsequent installment payments.
Q: Can I apply for the credit if I bought a vacation
home or rental property?
A: No. Vacation homes and rental property do not qualify for
Q: Who is considered to be a first-time homebuyer?
A: Taxpayers who have not owned another home at any time during
the three years prior to the date of purchase.
Q: When would I have had to buy a new home?
A: Only purchases of a main home located in the United States
qualify, and the home must have been purchased after April 8,
2008, and before July 1, 2009. For a home you construct, the
purchase date is the date you first occupy the home.
Q: How do I apply for the credit?
A: The credit is claimed on new IRS Form
5405 and filed with your 2008 federal tax return.
Q: How are repayments of the homebuyer credit tracked?
A: A memo field will be present on taxpayer record
and repayment will be tracked over the 15 year repayment period.
Q: How will the IRS know if someone sells their
residence before the 15 years are up?
A: Through both self reporting and third-party
Q. Are there income limits?
A. Yes. The credit is reduced or eliminated for higher-income
taxpayers. The credit is phased out based on your modified
adjusted gross income (MAGI). For a married couple filing a joint
return, the phase-out range is $150,000 to $170,000. For other
taxpayers, the phase-out range is $75,000 to $95,000.
This means the full credit is available for married couples
filing a joint return whose MAGI is $150,000 or less and for other
taxpayers whose MAGI is $75,000 or less.
Q: I purchased a home that qualifies for the First Time
Homebuyer Credit. I will be renting two of the bedrooms and
reporting the rental income on Schedule E. Will I still
qualify for the credit if I use the home as my principal
A: Yes, if you are a first-time homebuyer of a principal
residence in the United States, you generally may claim the
first-time homebuyer credit, but certain limitations, including a
limitation based on modified adjusted gross income, apply.
See Form 5405, First-Time Homebuyer Credit,
for more details.
Q: If two unmarried people buy a house together, how do
they determine how much each may take of the credit?
A: Two unmarried individuals buying a principal residence
may allocate the credit among the individual owners in any
reasonable manner. The total amount allocated between the
owners may not exceed the smaller of $7500 or 10% of the purchase
price of the house.
Q: Can a person with an ITIN, who qualifies as a
resident, take this credit?
A: Resident aliens with an ITIN are eligible to take the
Q: I don’t owe taxes and did not have taxes taken
from my paycheck, do I qualify for the credit?
A: Yes, the credit is fully refundable, and you can claim the
credit even if no taxes were withheld from your paycheck.
Q. Who cannot take the credit?
A. If any of the following describe you, you cannot take the
credit, even if you buy a main home:
Your income exceeds the phase-out range. This means joint
filers with MAGI of $170,000 and above and other taxpayers
with MAGI of $95,000 and above.
You buy your home from a close relative. This includes your
spouse, parent, grandparent, child or grandchild.
You stop using your home as your main home.
You sell your home before the end of the year.
You are a nonresident alien.
You are, or were, eligible to claim the District of Columbia
first-time homebuyer credit for any taxable year.
Your home financing comes from tax-exempt mortgage revenue
You owned another main home at any time during the three
years prior to the date of purchase. For example, if you
bought a home on July 1, 2008, you cannot take the credit
for that home if you owned, or had an ownership interest in,
another main home at any time from July 2, 2005, through
July 1, 2008.