Making Sense of the Homebuyer Tax Credit

Economic Stimulus

Home4sale

There’s been a lot of talk – and confusion — about the homebuyer credit. Part of the confusion can be attributed to the fact that Congress made at least 3 major changes to the homebuyer credit over the last couple years. So let’s try to make some sense of it. Rather than focus on what each of the changes are, I’m going to talk about what homebuyer credits are now available and how you qualify.

But first, let’s get rid of some of the confusion brought on by the first homebuyer credit in 2008. Initially, the first-time homebuyer credit applied to homes purchased during a period in 2008. It was a $7,500 “credit” that despite its name required you to pay back the $7,500 credit over 15 years. So it wasn’t really a credit, but a loan. That is now history so you can forget about this “credit.”

For 2009 there is now a true homebuyer credit (one that does not require you to pay it back… unless you sell it within three years) worth up to $8,000. While most of the attention has been focused on the first-time homebuyer, the credit has been expanded to include “repeat” buyers—worth up to $6,500.

To qualify for the first-time or repeat homebuyer credit, you have to meet several qualifications including home ownership and income tests. First-time homebuyers must not have owned a home in the last three years. Repeat homebuyers require home ownership for five consecutive years of the last eight years. The income test is described in the table below and is based on when you purchase your home. One thing to note about the income test is that the credit is reduced when your income exceeds the base income amount and the credit is completely wiped out when your income is $20,000 above the base amount. Not surprisingly, the homebuyer credit rules can become quite complex and that’s where TurboTax comes in. TurboTax walks you through a series of simple questions to determine eligibility and then computes your credit. You can wrack your brain trying to figure all this out, or just let TurboTax do the hard work for you.  But since the Congress just passed the repeat homebuyer credit, you are going to have to wait until January to claim the credit on your return to give the IRS some time to update the tax forms.  Bottom line, though, you could see your refund soar by $8,000!

This is such great news to homebuyers that it’s likely to tempt those who are looking to make a fast buck illegally. To mitigate fraud, the IRS requires documentation in the form of a completed settlement statement be attached to your tax return. As a result, homebuyers claiming the credit in 2009 will be unable to electronically file their return. While this will delay your refund by weeks, it still makes for a nice refund when it comes.

With home prices down, mortgage rates low and sweet credits available from Uncle Sam, now is a great time to purchase a home. Visit our web site for more information on the homebuyer credit.

FTHB Grid

Comments (0) Leave your comment

  1. I was wondering if we recieved this credit if it is possible to temporaily live at a different location to attend a college or university while still owning the home and using it as a primary address. We want to keep the home, but want to further our education as well.

  2. Confused… If you have not moved into the home yet, you do not qualify for any of the credit (special rules apply for those in the service). The general rule is that you must have a binding contract in place by April 30, 2010 and have closed by September 30, 2010.

    Congress has extended the closing date to provide buyers who had binding sales contracts in place by April 30, 2010, additional time to complete their purchases. In the case where you’re building the home, the same rules apply. For example, you must have taken occupancy by September 30, 2010 to qualify.

    Bob Meighan

    VP, TurboTax

  3. If you purchased property and are in the process of building a home on is there any part of the homebuyer credit that you qualify for?

  4. In response to Michelle’s post on 1/19/11… Based on what you described, it sounds like you may have qualified for the first time homebuyer credit in 2008 (it was actually a “loan” up to $7,500 that had to be paid back over 15 years) since you didn’t own a home for 3 years. You can still file an amended return to claim this credit. You have 3 years from the date of filing to amend your return.

    The house you bought in 2010 does not qualify because it is not your primary residence. Rather it is for your older children. So no credit in this case. Sorry!

    Bob Meighan

    VP, TurboTax

  5. What if I bought a home in 1999 for 17,000.00 and lived in it till 2005,then sold it for 15,000.00, moved to another state and rented a house for three years, then bought a home in 2008 paid it off by 2010 and bought another home next door for my older children to live in and for the past 3 years, my income has been 20,000.00 or less and am a single mom with 2 minor children. Please answer.

  6. Excellent read, I just now passed this onto a friend who was doing a small research on that. And also he actually bought me lunch because I found it for him smile So let me rephrase that: Thanks for lunch!

  7. Question on $8,000 tax credit. I closed escrow on my house in April and I qualified for it, however my question is since my boyfriend and I bought the house together and we are not married, do we individual qualify the first time buyer credit or does only one of us get the tax credit? We are both first time homebuyers.

  8. For the home buyer tax credit TT lists documentation required for repeat home buyers as “settlement statement.” So, do I also need to prove residency for the last five years? This is confusing and it appears I may need to find my last five years tax returns to find Form 1098s or past five years property tax statements. Can someone clarify whether the settlement statement alone meets the documentation requirements?

  9. This is so frustrating. I can’t ever find any info on the 2008 $7500 credit that applies to my home purchase. Guess what TurboTax? That program may be history to new homebuyers, but not to me! I still have to start paying it back, as far as I can tell, but when I went through my taxes in TT this year, there was no mention of the $500/year repayment. How on earth do I apply it? Just include an additional $500 check to the IRS with my return? Why can’t I find any support about this issue?

  10. So let’s get this perfectly straight. If I am claiming the first time home buyer credit, I cannot e-file with turbo tax (even thought the program will let you). I must print out the forms after finishing turbo tax and mail them in. Is this correct?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s