Tax Impacts

Filing for and epaying the Home Buyer Tax Credits

Posted on Friday, February 4, 2011

What is the first-time homebuyer tax credit?
The Homebuyer Tax Credit deadlines have passed for most homebuyers. However, a special rule gives an extension to eligible members of the military and other federal employees who served outside the U.S. between January 1, 2009 and April 30, 2010. Homebuyers who qualify under this special rule must enter into a contract to buy their home no later than April 30, 2011, and must close by June 30, 2011.

The first time homebuyer tax credit is a refundable federal tax credit for homebuyers who have not owned a home within the past three years. To qualify, you must purchase a home on or after April 9, 2008, sign a binding sales contract before May 1, 2010, and close no later than September 30, 2010. Your home can be a single-family house, a condo, a co-op, mobile home, or townhouse, and must be your principal residence.

The tax credit is worth 10% of the home's purchase price, up to a maximum credit of:

$8000 for homes bought in 2009 and 2010 ($4000 each for married filing separately)
$7500 for homes bought in 2008 ($3750 each for married filing separately)
For the 2009 and 2010 tax credits, you do not have to repay the credit as long as you own and live in the home as your principal residence for at least three years.

The 2008 first-time homebuyer tax credit has to be repaid. In effect, the tax credit is an interest-free loan from the federal government that must be repaid in equal installments over 15 years.



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What is the non-first-time homebuyer tax credit?
The Homebuyer Tax Credit deadlines have passed for most homebuyers. However, a special rule gives an extension to eligible members of the military and other federal employees who served outside the U.S. between January 1, 2009 and April 30, 2010. Homebuyers who qualify under this special rule must enter into a contract to buy their home no later than April 30, 2011, and must close by June 30, 2011.

The non-first-time homebuyer tax credit is a refundable federal tax credit for current and former homeowners who do not meet the first-time homebuyer requirements. To qualify, you must have owned and lived in your previous home for at least five consecutive years of the eight years before the purchase. The tax credit equals 10% of the purchase price, up to a maximum of $6500 ($3250 each if married filing separately).

You can claim the credit if you buy a home after November 6, 2009, sign a binding sales contract before May 1, 2010, and close no later than September 30, 2010. Your new home does not have to cost more than your previous home. You do not have to sell your previous home to be eligible for the tax credit, but you must live in your new home as your principal residence for at least three years.

Do I have to pay back the credit?
If the tax credit is for a home you bought in 2008, you must pay back the credit. If the credit is for a home you bought in 2009 or 2010, you do not have to pay back the credit in most cases.

2008 Homebuyer tax credit: You must start paying back the credit two years after the year you bought the house. You pay back the credit over a 15-year period as an additional tax on your tax return. If you claim a $7500 credit, for example, you must pay back about $500 per year. Note: The tax credit is basically a 15-year interest-free loan from the government.

If you stop living in the house as your primary residence, or if you sell the house before the 15-year repayment period is over, you must pay back the balance of the tax credit in full. In special situations, you do not have to pay back the full amount (for example if you do not make enough profit from the sale of the house to pay back the credit, or if the taxpayer dies).

2009-2010 Homebuyer tax credit: You do not have to pay back the credit as long as you own and live in the home as your principal residence for at least three years. If you sell the home before the three years are up, you must pay back the entire credit.

What tax forms do I file?
Property tax deduction:

For the property tax deduction for homeowners who do not itemize, you enter the increased standard deduction on federal tax Form 1040 or Form 1040A. You do not file a special form.

The instructions for Forms 1040 and 1040A include a Standard Deduction Worksheet so you can calculate your standard deduction with the property tax deduction included.

First-time Homebuyer Credit:

To claim the First Time Homebuyer Credit, you must file Form 5405 with your federal tax return. You can get a copy of Form 5405:

by downloading the form from the IRS web site:
Form 5405 - First-Time Homebuyer Credit (PDF)
Form 5405 Instructions

or by calling the IRS at 1-800-829-3676 and asking them to mail Form 5405 to you
Important! If you are claiming the homebuyer tax credit on an original or amended 2009 tax return (or later), you may not file your tax return electronically. You must attach a copy of your settlement statement or other proof of purchase according to the Form 5405 Instructions and mail your tax return with Form 5405 to the IRS.

For more information about how to get the Homebuyer Tax Credit, see How to Get the Extended Home Buyer Tax Credit and How to Get the 2009 First-Time Home Buyer Tax Credit on the National Association of Realtors® web site.

To check the status of your refund, go to Get Refund Status on the IRS web site.

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The Basics: Extended Home Buyer Tax Credit 2009/2010
Detailed information about the extended homebuyer tax credit, including How to Get the Extended Home Buyer Tax Credit, from the National Association of Realtors®.

Home Buyer Tax Credits
Answers to frequently asked questions about the first-time homebuyer tax credit and the repeat buyer tax credit. From the National Association of Home Builders.

First-Time Homebuyer Tax Credit and First-Time Homebuyer Credit: Answers
Information about the 2008 and 2009 homebuyer tax credit, including which home purchases qualify, the amount of the credit, income limits, who cannot take the credit, and how the credit must be repaid. From the IRS.

In-Depth: 2009 First-Time Home Buyer Tax Credit and American Recovery and Reinvestment Act of 2009
Information about the 2009 first-time homebuyer credit and other housing-related provisions of the 2009 economic stimulus package. Includes Comparison of the 2008 and 2009 first-time homebuyer tax credits. From the National Association of Realtors®.


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