It has been on the books for a while now, but from the questions I’ve been getting thought it was a good time for a refresher course on the “so-called” First-time home buyer tax credit.
First, why do I have “so called” in quotes?
Well a first-time home buyer according to the tax provision includes anyone that has not owned their principle residence over the past three years. So you sold a house in 2004, and have rented since, you qualify for the tax credit.
Am I guaranteed $8000?
No. The tax credit is limited to 10% of the home’s value maxed out at $8,000. So, buy a home for $20,000 and $2,000 is the max that you could claim on the you taxes. Also there are income limitations that begin to kick in at $75,000 for single payer tax returns and $150,000 for married filing jointly. It totally phases out at $95,000 for single ($170,000 for married filing jointly); hence you make $85,000 and the maximum amount would be $4,000.
Can I use this to help with my down payment?
Technically, no. In application, the answer may be yes depending on your bank or loan organization. I recently wrote about Ohio Housing Finance Agency offering a second-mortgage that will allow the home buyer access to the tax credit now with the expectation that you’ll pay off the loan with your 2010 taxes. I have heard of a couple of banks that are doing loans based on this money, but none of them have gone public with their plans yet.
Do I have to repay the $8,000 Tax Credit?
Maybe. The Tax Code is written in such a way that if the home remains your primary residence for 36 months (three years) then the money doesn’t need to be repaid. However, if it stops being your primary residence within those first 36 months the amount will be due on the following year’s tax return.
This is a departure from some of the other rules in the home buying process where INTENT is enough to keep you from being in violation of your mortgage. This is in essence a “due on move” clause for the tax code. And the amount is for the total tax credit regardless of how long you’ve owned the home. Hence, no “credit” for making it 2 years and 363 days.
A little disclaimer, the loan never has to be repaid per regulations, but if you move it is called recapture — hence the ability for people to claim it NEVER has to be repaid. In my world, if you could owe money then it is repayment.
My wife is not on the deed for our house, can we sell it and get the tax credit?
No. The home has been your wife’s principle residence at some point over the past three years, and because of community property laws it would not be allowable per the IRS.
How long is the credit good for?
The purchase must be funded by December 1, 2009.
Get the IRS Form 5405 online from the IRS.
All images by svilen mushkatov and used with permission.
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10% is already a big help for people who are buying a home for the “first” time. I just hope the misconceptions such as who are first time home buyers, and how much they’ll get, will be cleared out so people won’t get disappointed with the program.