Changes in November of this past year extended the $8000 tax credit to first time home buyers and added a $6500 tax credit for people who already own a home (repeat buyers). The extension also raised income limitations for homeowners claiming the credit.
Obviously, the credit was getting a lot of attention when it was announced, but now people are paying more attention since it’s time to file taxes. I thought I would do a little bit of research to cover some of the most important information as well as provide what I found related to filing for the credit.
The difference between a tax credit and a deduction is also important to keep in mind. A credit is a reduction in the amount of taxes owed to the federal government. A deduction is a reduction in the amount of income that is taxed. If you owe $8000 in taxes and are qualified o receive the $8000 tax credit the amount of taxes you owe will be $0.
Important information for the first time and repeat home buyer tax credits
- First-time home buyers can get a tax credit up to $8000 if purchasing a home on or after January 1, 2009 and on or before April 30, 2010. If a sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 still qualifies.
- Repeat home buyers can get a tax credit up to $6,500 if they have owned a home for 5 consecutive years out of the prior eight years. It applies to homes sold after November 6, 2009 and on or before April 30, 2010. If a sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010, still qualifies.
- There are income limits for both credits of $125,000 for individuals and $225,000 for married couples filing jointly for all sales occurring after November 6, 2009.
- The income limits are different for sales occurring after January 1, 2009 and on or before November 6, 2009. They are $75,000 for individuals and $150,000 for married couples filing jointly.
- The home cannot be priced above $800,000 in order to be eligible for both tax credits.
How do I apply for the tax credit?
- Because of documentation required for the home buyer’s tax credit, you must file a paper return if you claim the credit on your 2009 tax return.
- The credit is claimed on IRS Form 5405. Once you have completed Form 5405 and determined the tax credit amount, claim this amount on line 67 of the 1040 income tax form for 2009 returns. It’s on line 69 of the 1040 income tax return for 2008.
- You must submit a copy of the HUD-1 settlement statement and IRS Form 5405 to claim either the first time home buyer tax credit or the repeat home buyer tax credit.
- The IRS also recommends for long-time residents/repeat buyers claiming the credit attaching some additional information:
- Form 1098, mortgage interest statement, property tax records or homeowner’s insurance records. My recommendation in filing for the credit is to be as complete, organized and thorough as possible so there is no delay in receiving your credit.
As always, I’d like to remind you I’m not a tax professional. Please consult with your tax advisor or professional to determine specifics about your situation and if you’re eligible to receive the credit.