Homebuyer Tax Credit Available

Money Up for Grabs for Some Homebuyers in the Market for a New Home

Nov 4, 2009

There's money available for first-time homebuyers or buyers who haven't owned a home for three years. The First-Time Homebuyer Credit offers up to an $8,000 tax credit.

The Housing and Economic Recovery Act of 2008 created a homebuyer credit that has been extended into 2009. The credit is available for first-time homebuyers and other buyers who have not owned a home in the previous three years. The tax credit is equal to 10% of the purchase price of the home, up to $8,000 for homes purchased in 2009.

This homebuyer credit reduces the amount of money—dollar for dollar—that a taxpayer owes to the Internal Revenue Service. For instance, if a taxpayer ends up owing $9,000 in taxes but receives a credit of $8,000, the taxpayer would owe $1,000 to the IRS.

Who Is Eligible for the Homebuyer Credit?

Taxpayers who have not owned another home during the previous three years are eligible for the credit. Note, a vacation home or rental property that is not used as the principal residence does not disqualify a buyer.

To qualify for the credit, single taxpayers cannot earn more than $75,000 to receive the full credit. Married taxpayers filing jointly cannot earn more than $150,000 to receive the full credit.

How to Claim the Homebuyer Credit

Claiming the credit is fairly easy. A claim is made on the federal income tax return by filling out IRS Form 5405, First-Time Homebuyer Credit. No pre-approval process is necessary.

What Homes Qualify for the Homebuyer Credit?

To qualify for the First-Time Homebuyer credit, the home must be used as the principal residence. New and resold homes—single-family homes, townhomes, condos, mobile homes, and houseboats—qualify for the credit.

There are some rules that would disqualify a home from meeting the requirements for the credit. A buyer cannot purchase the home from his or her spouse or a close relative, such as a parent, grandparent, child, or grandchild. However, step-relatives are exempt from this rule since they are not related to the buyer.

Homebuyer Credit Available Until Nov. 30 But May Be Extended

To qualify for the 2009 First-Time Homebuyer Credit, the home purchase must be completed on or after January 1, 2009, and before December 1, 2009. There is, however, speculation that the credit may be extended beyond the December 1, 2009, cutoff date.

Is It Best to Act Now to Receive the Homebuyer Credit?

For people who are already in the market for a new home, it could make good financial sense to purchase a home before December 1, 2009, so that they can take advantage of the First-Time Homebuyer Credit. This incentive will net them up to an $8,000 credit on their taxes. To qualify for the credit, an individual must be a new homebuyer or must not have owned a home during the previous three years and must be purchasing the home to use as the primary residence.

The copyright of the article Homebuyer Tax Credit Available in Personal Tax Planning is owned by Aimee Larsen Stoddard. Permission to republish Homebuyer Tax Credit Available in print or online must be granted by the author in writing.