First Time Home Buyer Federal Income Tax Credit 2008 and 2009

Due to some confusion regarding this credit I am writing an article. I want to clear up some of the myths and arm you with the correct information.

First Time Home Buyer’s are defined as a person who has not owned a home considered their principle residence in the last 3 years. If you purchase a home that is occupied as your principle residence and are a First Time Home Buyer you are eligible to receive a tax credit. On returns filed separately your individual Adjusted Gross Income cannot exceed $95,000. If you are married filing joint your Adjusted Gross Income cannot exceed $170,000. To claim the full credit your Adjusted Gross Income must be equal to or less than $75,000 individual or $150,000 married filing joint.

You can own other homes. You could not have occupied those homes as your principle residence in the last 3 years.

If you and/or your spouse purchase a home then you are eligible for the credit as long as neither of you have owned a home in the last 3 years. If you file a joint return the credit is 10% of the purchase price up to $7,500/$8,000. If you file separately you split the credit. (5% of the purchase price up to $3,750/$4,000 each)

If you and another person (Not a Spouse) purchase a home together the credit is divided equally among all purchasers. However, if one or more purchaser’s is not a First Time Home Buyer then their portion of the credit cannot be claimed.

This credit was created initially through the Housing and Economic Recovery Act of 2008 which covered homes purchased between April 8, 2008 and November 31, 2008. Under this legislation you were eligible to receive a tax credit of 10% of the homes purchase price up to $7,500. The money was to be paid back beginning with the 2010 tax year and over the next 15 years in equal installments. It is a no interest loan.

The American Recovery and Reinvestment Act of 2009 extended this credit for home purchases made between January 1, 2009 and November 31, 2009. It also made the credit a maximum of $8,000. You DO NOT have to repay the credit to the IRS under this act unless you sell or transfer your home within 3 years after the date of purchase. The credit can be claimed on your 2008 Federal Income Tax Return. If you have already filed a return you can amend your 2008 Federal Income Tax Return by filing a 1040X and receive the credit for this tax year OR you can file for the credit on your 2009 Federal Income Tax Return.

More information is available on the tax form used for claiming the credit below:

IRS Form 5405

If you have a specific question make a comment on this post and I will get an answer. You could also contact the IRS directly.

I also want to discuss how this credit has effected the housing industry. I personally and several others have seen a reaction to this credit. People who have hesitated to purchase a home have made the decision to do so as a result of the credit. However, the credit ends on December 1. 2009 and currently has no solid plan to continue.

If people are trying to claim this credit they would need to be in contract to purchase a home by the beginning of November to have a valid chance to close on time. The date the deed is recorded is the official date you own the home.