The first-time homebuyer tax credit provides tax relief of up to $8,000 for certain taxpayers.
For all the details, and for applying it to your own situation, you’ll certainly want to check with the Internal Revenue Service (see Form 5405 specifically) or a qualified accountant or tax professional. But here we can at least cover some of the basics.
A first-time homebuyer is someone who had not owned a principal residence in the last three years prior to this purchase. If the buyer is married, then his or her spouse must also have not owned a principal residence in the last three years.
A principal residence need not be just a conventional detached house, but includes such things as condominiums, houseboats, and mobile homes. It also counts as a “purchase” if you pay someone to build a house on land you already own.
The purchase may not be from a close relative of oneself or one’s spouse.
The tax credit is 10% of the purchase price, up to $8,000. However, the credit is not available if the purchase price is above $800,000.
If the credit exceeds the amount of tax due, then the difference will be issued as a refund, so even if you have little or no income and are paying little if anything in federal taxes this year, you will still get the same benefit.
Following the extension passed in 2009, the credit now applies to sales from January 1, 2009 to April 30, 2010. (As long as the contract is signed by April 30, it still counts as long as it’s closed by September 30.)
For sales during that period that occurred up to November 6, 2009, taxpayers with incomes under $75,000 ($150,000 for couples filing jointly) are eligible for the full 10% credit. For sales during that period after November 6, 2009, the limit is bumped up to $125,000 ($225,000 for couples filing jointly). For taxpayers narrowly over these limits, it is still possible to get a partial tax credit under 10%. (Again, check the IRS website or relevant forms for the specific calculations.)
An important twist to be aware of is you are allowed to be strategic in deciding which year to claim the credit, if, say, your income is over the limit one year and under the limit another. For an eligible purchase that occurred in 2009, for tax purposes you can claim the credit on either your 2008 or 2009 taxes. (Even after the fact. You can go back and amend your 2008 taxes for instance if you want to claim it for that year.) For purchases that occur in 2010 (up to the April 30 deadline), you can claim the credit on either your 2009 or 2010 taxes.
Again, this is just a quick overview so you’ll be able to determine if you’re likely eligible to take this tax credit for a home you’ve bought recently, or for a purchase you are intending or considering. Be sure to follow up with a qualified tax professional for further details.