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How to Get the Extended Home Buyer Tax Credit

You’ve decided to purchase a home and take advantage of the Extended Home Buyer Tax Credit. Here's what you have to do to get your benefit:

  1. Close on your home purchase between November 7, 2009 and April 30, 2010, or have a binding written contract by April 30, 2010 and close by July 1, 2010.
  2.  Decide whether to: 
    • apply the credit to your 2009 tax return, filed on or before April 15, 2010;
    •  file an amended 2009 return; or, 
    • apply the credit on your 2010 return, filed on or before April 15, 2011.
  1. Attach documentation of purchase to your return.

Documentation of Purchase

Details concerning the precise documents required to confirm your purchase have not yet been released. When this information becomes available, we will include instructions and links to the appropriate forms.

When to Apply the Credit

Buyers purchasing homes on or before December 31, 2009 may claim the credit on their 2009 tax returns.Buyers purchasing in 2010 will have the option to:

  •  Claim the credit on their 2009 return, even if the purchase is completed after December 31, 2009;
  •  File an amended return for 2009 if their purchase is completed after April 15, 2010; or,
  •  Claim the credit on their 2010 tax returns.

If you, or your client, purchased a home between January 1, 2009 and November 6, 2009, please see: How to Get the 2009 First-Time Home Buyer Tax Credit.

Applying the Credit to Your 2009 Taxes

You will need to do three things to claim the credit on your 2009 tax return:

  1. Fill out Form 5405 to determine the amount of your available credit;
  2. Apply the credit when you file your 2009 tax return or file an amended return;
  3. Attach documentation of purchase to your return or amended return.

 

First-Time Homebuyer Credit: Answers (updated 11/6/09)
 

First-time homebuyers may be able to take advantage of a tax credit for homes purchased in 2008 or 2009. Review our question and answer pages to find the information you need on:

 

First-Time Homebuyer Credit Extended to April 30, 2010; Some Current Homeowners Now Also Qualify
 

IR-2009-108, Nov. 24, 2009

WASHINGTON — A new law that went into effect Nov. 6 extends the first-time homebuyer credit five months and expands the eligibility requirements for purchasers.

The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase.

The maximum credit amount remains at $8,000 for a first-time homebuyer –– that is, a buyer who has not owned a primary residence during the three years up to the date of purchase.

But the new law also provides a “long-time resident” credit of up to $6,500 to others who do not qualify as “first-time homebuyers.” To qualify this way, a buyer 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 ending on the date of purchase of a new home as a primary residence.

For all qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.

A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.

A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405.

Income Limits Rise

The new law raises the income limits for people who purchase homes after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

New Requirements

Several new restrictions on purchases that occur after Nov. 6 go into effect with the new law:

  • Dependents are not eligible to claim the credit.
  • No credit is available if the purchase price of a home is more than $800,000.
  • A purchaser must be at least 18 years of age on the date of purchase.

For Members of the Military

Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011.

For more details on the credit, visit the First-Time Homebuyer Credit page on IRS.gov.

$8,000 First Time Home Buyer Tax Credit To Be Extended and Expanded

Senate negotiators announced during the last week of October that they had come to an agreement on extending and slightly expanding the extremely popular $8,000 first time home buyer tax credit.

The existing $8,000 first time home buyer tax credit will be extended until June 30, 2010, for contracts that are finalized by April 30. Homeowners who lived in their homes for five consecutive years over the past eight years, will get a tax credit of up to $6,500 as long as they finalize their home purchase contract by April 30 and close by June 30.

Members of the Armed Forces who are on active duty for at least 90 days in 2008 or 2009 have until April 30, 2011 to claim the tax credit as either first-time buyers or trade-up buyers.

To protect against fraud, you must be 18 years of age or older to claim the credit (a 4-year old had claimed the credit as a first-time buyer because her parents already owned a home), and a HUD-1 settlement statement must be attached to the tax filing. Finally, the IRS will have greater oversight during the processing of forms, rather than waiting to audit them.

The income limits for the tax credit have been raised to $125,000 for individuals and up to $225,000 for married couples.

The $8,000 first time home buyer tax credit was due to expire on November 30, 2009. Originally, the White House said it would be in favor of simply extending the tax credit for first-time buyers through the winter selling season, which is typically slightly slower than the rest of the year.

But the latest new home sales figures from the Commerce Department caught everyone by surprise: New home sales for September dropped a surprising 3.5 percent, to an annualized 402,000 sales for 2009.

Economists were expecting new home sales to rise about 5 percent. The new annualized sales figure is about the lowest on record.

Up until the Commerce Department report, Senators were arguing about whether an extension or expansion of the tax credit was really needed. The cost, about $17 billion, is unpopular with some taxpayers who believe the Federal deficit shouldn’t be inflated any more than it already is.

But the National Association of Realtors, Mortgage Bankers, and National Association of Home Builders have been pushing Congress and the White House for months, arguing that without an extension and expansion of the $8,000 tax credit, existing and new home sales were destined to fall flat, much the way new car sales died after the “Cash for Clunkers” expired.

The new home sales number seems to be the “magic bullet” Senators and lobbyists were hoping to find. The deal, which had been in negotiation for weeks, came together quickly once the new homes numbers were announced.

In a press conference, Treasury Secretary Tim Geithner and HUD Secretary Shaun Donovan said they "welcome efforts taken by Congress to extend the First Time Homebuyers Tax Credit for a limited period. This credit has brought new families into the housing market and contributed to three consecutive months of rising home prices nationwide."

Mindful that the IRS has testified as many as 100,000 taxpayers have fraudulently applied for the credit, Geithner and Donovan urged Congress “to include strict measures to combat tax fraud and protect responsible homeowners.”

In the same press conference, Geithner and Donovan also urged Congress to extend higher loan limits for mortgages and secure funding for the Housing Trust Fund, which helps extremely low-income families find housing.

While everyone is celebrating the extension and expansion of the $8,000 tax credit, don’t forget what it really says about the U.S. housing market: It’s fragile and weak.  

NEW/ UPDATED Tax Credit Information

The American Recovery and Reinvestment Act of 2009 (Recovery Act) provides for as much as an $8000 tax credit to qualified first-time homebuyers. FHA supports this important initiative to promote homeownership.

I. About the First-Time Homebuyer Tax Credit

Please check the IRS website to ensure you have up-to-date information. A brief overview of the tax credit from the IRS website and a copy of IRS Form 5405 (including instructions) are attached for reference.

Pursuant to 31 U.S.C. 3727 and 26 U.S.C. 6402, a refund of the first-time homebuyer credit will be made by the IRS only to the taxpayer, not to a third party. In other words, any refund issued in response to a claim for this credit cannot be assigned by a taxpayer to a third party.

II. FHA Tax Credit Guidance

Secondary Financing

Consistent with existing FHA policy, FHA will permit entities covered by Section 528 of the National Housing Act to use the current authority to offer tax credit advances with second liens in a manner consistent with the requirements in 12 U.S.C. 1709(b)(9). Eligible government agencies and instrumentalities of government are described in handbook HUD-4155.1 5.C3 and 5.C4.

Purchase of Tax Credit

FHA-approved mortgagees and FHA-approved nonprofit organizations as well as Federal, state, and local governmental agencies and instrumentalities thereof may purchase the tax credit anticipated by the homebuyer.

Due Diligence

FHA expects that entities purchasing tax credit assets will employ appropriate due diligence measures including, but not limited to:

  • Require the homebuyer to draft and provide the IRS form 5405 “First-Time Homebuyer Credit.”
  • Contact the borrower’s employer and review pay stubs to confirm there are no outstanding garnishments.
  • Review the homebuyer’s credit report to ensure there are no unpaid student loans, or other obligations that could be offset against the credit.
  • Validate that all of the eligibility requirements for the tax credit are fulfilled
  • Review previous tax returns and IRS tax assessment letters, if any, to determine that the borrower does not have unsettled obligations to the IRS

 Please call your Loan Officer for more Details

617.269.1118

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First time home buyers tax credit information

As Modified in the American Recovery and Reinvestment Act

Major Modifications Italicized

February 2009

FEATURE CREDIT AS CREATED JULY 2008 APPLIES TO ALL QUALIFIED PURCHASES ON OR AFTER APRIL 9, 2008 REVISED CREDIT – EFFECTIVE FOR PURCHASES ON OR AFTER JANUARY 1, 2009 AND BEFORE DECEMBER 1, 2009
Amount of Credit Lesser of 10 percent of cost of home or $7500 Maximum credit amount increased to $8000
Eligible Property Any single family residence (including condos, co-ops, townhouses) that will be used as a principal residence. No change All principal residences eligible.
Refundable Yes. Reduces (or can eliminate) income tax liability for the year of purchase. Any unused amount of tax credit refunded to purchaser. No change Purchasers will continue to receive refund for unused amount when tax return is filed.
Income Limit Yes. Full amount of credit available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). Phases out above those caps ($95,000 and $170,000). No change Same income limits continue to apply.
First-time Homebuyer Only Yes. Purchaser (and purchaser’s spouse) may not have owned a principal residence in 3 years previous to purchase. No change Still available for first-time purchasers only. Three-year rule continues to apply.
Revenue Bond Financing No credit allowed if home financed with state/local bond funding. Purchasers who utilize revenue bond financing can use credit.
Repayment Yes. Portion (6.67% of credit or $500) to be repaid each year for 15 years, starting with 2010 tax filing. No repayment for purchases on or after January 1, 2009 and before December 1, 2009
Recapture If home sold before 15-year repayment period ends, then outstanding balance of repayment amount recaptured on sale. If home is sold within three years of purchase, entire amount of credit is recaptured on sale. Applies only to homes purchased in 2009.
Termination July 1, 2009 (But note program changes for 2009) December 1, 2009
Effective Date Purchases on or after April 9, 2008 and before January 1, 2009. Repayment to begin for 2010 tax year. All revisions are effective as of January 1, 2009

For more information, please consult your tax advisor, or visit www.federalhousingtaxcredit.com/

If you do not have a tax advisor, please ask your loan offier for a list of their preferred business contacts. 

 



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