First-Time Home Buyer's Tax Credit Explained

Updated Information About the Home Buyer Tax Credit

The Worker, Homeownership, and Business Assistance Act of 2009 has extended the tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010). A new provision of this tax credit is the extension of the program to grant up to $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence The tax credit is equal to 10 percent of the home?s purchase price The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes manufactured homes (also known as mobile homes), single-family detached homes, attached homes like townhouses and condominiums, and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.
The following questions and answers provide basic information about the tax credit. http://www.federalhousingtaxcredit.com/faq1.php
If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.
The Manufactured Housing Institute (MMI) and its affiliate the National Communities Council (NCC) advocated key provisions which were included in the final economic stimulus package passed into law this year. In particular, the law authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence, including a manufactured home, any time after January 1, 2009 and before December 1, 2009. MMI has provided the following guidance on this program.
(This is guidance only: consult your tax professional.)
Who is eligible to claim the tax credit?
First-time home buyers purchasing a principal residence - either new or resale - are eligible for a tax credit of up to $8,000. To qualify for the tax credit a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit the purchase date is the date when closing occurs and the title to the property transfers to the home owner. The tax credit will be administered through the Internal Revenue Service (IRS).
What is the definition of a first-time buyer?
The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law reviews the home ownership of both buyer and his/her spouse.
Does this tax credit apply to manufactured and modular homes?
Any home that will be used as a principal residence will qualify for the credit including manufactured homes, modular homes, site-built homes, and even house boats! This also includes homes placed on private land or in a land-lease community, a condominium, or a cooperative. Homes financed using a personal property loan are eligible.
How is the amount of tax to be determined?
The tax credit is equal to 10 percent (10%) of the home's purchase price up to 8,000.
What exactly is a tax credit?
A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. So a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.
What does it mean that the credit is "refundable"?
The fact that the credit is refundable means the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even the entire amount of the refundable tax credit.
For example, if a qualified home buyer expected (ignoring, for now, the tax credit) a federal income tax liability of $6,000 and had withholdings of $5,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the full $8,000 home buyer tax credit. as a result the tax payer would actually receive a check for $7,000 ($8,000 minus the $1,000 owed).

How is this home buyer tax credit different from the last tax credit that Congress enacted in July of 2008?
This new provision is a true "credit" and does not have to be repaid, unlike the previous one which was essentially an interest-free loan. However, home buyers still must use the residence as a principal residence for at least three (3)years or else return a portion of the tax credit amount.
What are the income limits for individuals claiming the tax credit?

For single taxpayers with a modified adjusted gross income (MAGI), as defined by the IRS, under $75,000 or married taxpayers filing a joint return with a MAGI under $150,000 the full $8,000 tax credit amount is available.

For single taxpayers with a MAGI over $75,000 or married taxpayers filing a joint return with a MAGI over $150,000, the credit is reduced proportionally using a phase-out.

For single taxpayers with a MAGI of more than $95,000 or married tax payers filing a joint return with a MAGI over $170,000, the tax credit is reduced to zero.

Partial credits of less than $8,000 are available for some home buyers whose MAGI exceeds the phase-out limits. All home buyers should consult with a tax professional to calculate the exact amount they are eligible to receive.
How do home buyers claim the tax credit?
Home buyers will claim the tax credit on their federal income tax return. Specifically, home buyers should complete IRS form 5405 to determine their tax credit amount and then claim this amount on line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary.
Can someone who is not a U.S. citizen claim the tax credit?
Anyone who is not a nonresident alien (as defined by the IRS) who has not owned a principal residence in the previous three (3) years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.
Can a home buyer apply the tax credit against their 2008 tax return?
Yes. The law allows taxpayers to choose to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI)applies and accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty.

Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have already submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit.

Also, prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of credit) will enable the buyer to accumulate cash by raising his/her take-home pay. This money can then be applied to the down payment. All home buyers should consult with tax professionals to determine how to arrange this.