*****EXPIRED APRIL 30, 2010!*****EXPIRED APRIL 30, 2010!*****
A first time homebuyer may be eligible for an income tax credit, of up to $8,000, for a home purchased after April 8, 2008 and before December 1, 2009.
*****SEE BREAKING NEWS UPDATE BELOW!!*****
The taxpayer must use the home as his/her principal residence, and the tax credit reduces his/her tax liability or increases his/her tax refund dollar for dollar.
This means that the tax credit is fully refundable, so if you were already owing no tax or were getting a refund, this credit can increase your refund up to $8,000.
If you owe taxes, this credit can reduces that tax liability by up to $8,000, or put you into a refund (instead of owing) position.
Form 5405 is used to claim the credit.
Here's how it works...
If you purchased a home in 2008 after April 8th, the Housing and Economic Recovery Act of 2008 created a tax credit for first time homebuyers equal to 10% of the purchase price, up to $7,500.
This credit is basically an interest free loan, and must be repaid $500 per year (for 15 years) beginning with your 2010 income tax return.
So it's not exactly FREE money to keep, but where else can you borrow money with absolutely NO INTEREST???
But...this changes for 2009...
If you purchase(d) a home in 2009 before December 1st, the American Recovery and Reinvestment Act of 2009 increases the maximum amount of this credit to $8,000, and...
The taxpayer does NOT have to pay the credit back as long as the home continues to be his or her main residence for three years following the date of purchase.
Furthermore, this 2009 credit may be claimed on either your 2008 or 2009 tax return.
Since the original deadline for filing your 2008 tax return passed on April 15, 2009, if you've extended your 2008 tax return, you can still claim the credit when your 2008 tax return is finalized.
If you've already filed your 2008 tax return, you may claim the credit by filing an amended 2008 tax return.
To be considered a "first time homebuyer," you must not have owned your own principal residence home for three years prior to the date of the qualified purchase.
BREAKING NEWS UPDATE: A new law went into effect recently which extends the first-time homebuyer credit five months. The deadline for qualifying home purchases is now April 30, 2010. Also, if a homebuyer enters into a binding contract by April 30, 2010, the homebuyer has until June 30, 2010, to settle on the purchase.
According to this new law, those who do not qualify as "first-time homebuyers," may qualify as "long-time residents," thus becoming eligible for a credit of up to $6,500. In this case, a homebuyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period prior to the date of purchase of a new home as a primary residence.
You can find many of the frequently asked questions and excellent guidance at http://www.irs.gov.
With me having an interest in real estate investing, the debate has begun for first time homebuyers who purchase a home using untraditional financing...i.e. agreements for deed, land contracts, subject to's, owner financing, etc. Click here for more details on these "untraditional" financing methods.
As far as I can see, there are no special stipulations in the bill that address these issues, but some tax preparers are not comfortable allowing a taxpayer to take this credit when using one of these methods of purchase.
Quite frankly, this is definitely a gray area, with good arguments on both sides of the equation, so I'd suggest you consult with your tax advisor if you find yourself in this situation.
But overall, this is another excellent reason to quit throwing your money out the window in rent...
To Your Success...