Some first-time homebuyers and longtime home owners may be able to claim a federal tax credit on a principal residence bought in 2009 or early 2010. Eligibility depends on a number of factors, including income, homeownership status, and the exact purchase date of the home.
To be considered a first-time buyer by the IRS, you must not have owned a home for the three years prior to your purchase. Longtime homeowners must have lived in their homes for five consecutive years during the past eight years. Revised rules apply to those who buy between Nov. 7, 2009, and April 30, 2010. Buyers who made purchases on or before Nov. 6, 2009, are covered under an older set of guidelines.
New rules for first-time home buyers
First-time buyers who purchase a home between Nov. 7, 2009, and April 30, 2010, may be entitled to a federal tax credit worth 10% of the sale price or $8,000, whichever is lesser. Income restrictions apply. The tax credit for joint filers begins to phase out at a modified adjusted gross income of $225,000 ($125,000 for individual taxpayers). The credit disappears entirely at $245,000 for joint filers ($145,000 for individuals).
While first-time buyers must enter into a binding contract to purchase a principal residence by April 30, the closing can take place as late as June 30, 2010. The home can’t cost more than $800,000.
Qualifying purchases in 2009 can be claimed on your 2008 or 2009 return. File an amended return for 2008. Purchases in 2010 can be claimed on your 2009 or 2010 return. To get the credit for the 2009 tax year on a purchase that closes after April 15, 2010, either request an automatic filing extension or file an amended 2009 return.
The first-time homebuyer tax credit is “refundable,” That means you can earn it even if you owe no federal tax, the credit exceeds your total tax liability, or you have little income. Claim the credit on IRS Form 5405, which should take less than an hour to fill out. It’s a good idea to consult a tax advisor.
Old rules for first-time home buyers
First-timers who bought a home between Jan. 1, 2009, and Nov. 6, 2009, may also be eligible for a federal tax credit worth up to $8,000. A tax credit reduces your tax bill or increases your refund dollar for dollar. In general, whether under the old rules or the new rules, you’ll be required to repay the full value of the credit to the IRS if you don’t maintain the home as your principal residence for three years.
First-time buyers subject to the old rules face tighter income limit. The phase-out kicks in for joint filers when modified adjusted gross income hits $150,000 ($75,000 for individual taxpayers). It disappears entirely at $170,000 for joint filers ($95,000 for individuals). Married filing separately taxpayers can claim only up to half of the $8,000 credit.
Tax credit for move-up home buyers
If you’re a longtime homeowner—meaning you’ve lived at your principal residence for five consecutive years out of the last eight—you may qualify for a homebuyer tax credit worth up to $6,500. You must purchase a new principal residence between Nov. 7, 2009, and April 30, 2010. Like the first-time homebuyer tax credit that applies to these dates, you can close as late as June 30, 2010, as long as you have a binding contract by April 30.
You do not have to sell your current residence, but the home you are purchasing must become your principal residence.
The same $800,000 cap on the purchase price applies to longtime homeowners, as do the same income restrictions. The credit begins to phase out for joint filers at modified adjusted gross income of $225,000 ($125,000 for individuals), and disappears at $245,000 ($145,000 for individuals). Married couples filing separately are eligible for up to half of the $6,500 credit.
For both first-time and longtime buyers who want to claim the tax credit for a purchase made after Nov. 6, 2009, the IRS requires proof. Attach a copy of the settlement statement you received at closing to your return.
- NUMBER1EXPERT 
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