DON’T MISS OUT ON THIS
GREAT OPPORTUNITY TO
PURCHASE YOUR
DREAM HOME AND
POCKET SOME HUGE SAVINGS!
G O V E R N M E N T O F F E R S
$ 8 0 0 0 T A X C R E D I T T O
1 S T T I M E H O M E B U Y E R S !
Shona Namie 612.865.8070 Realtor
Scott Smith 612.327.8666 PHH Home Loans
Contact your PHH Home Loans Mortgage Consultant
for more information and a free same-day pre-approval:
Mortgage loans are subject to qualification, receipt of satisfactory appraisal
and verification of income, asset and debt information provided
by the seller. *Certain eligibility criteria must be met. Homebuyers
should consult their tax advisor for further details. Financing provided
by PHH Home Loans, 7550 France Ave. S., Edina, MN 55435. Authorized
to lend in MN, WI and IL. This is not an offer to enter an
interest rate lock-in agreement. Not intended to be a solicitation
in any other state. Prices and programs are subject to
change without notice.
Interest rates are at all
time lows, inventory is high
and money is available to lend!
Now is the perfect time to buy.
CALL TODAY!
A tax credit is available for 1st time homebuyers
under the American Recovery and Reinvestment Act
of 2009. If you buy a home between January 1, 2009
and December 1, 2009, you may be eligible to receive a
tax credit for 10% of the purchase price of your home
up to $8000. Program highlights include:
· Any individual (and if married, their spouse) who has had
no ownership interest in a home during the last three years
is eligible
· Full credit for single taxpayers with incomes up to $75,000
($150,000 on a joint return); partial credit for income up to
$95,000 ($170,000 joint return)
· Available only for the purchase of a single family home,
townhome, condo, and new construction that will be used
as a principal residence
· If your home is sold before 3 years, the 1st time homebuyer
(who is now the seller) must pay the IRS the entire amount
of the tax credit at closing
· Homebuyers can reduce (or even eliminate) their income
tax liability for the year of purchase by claiming the credit
on their tax return.*
Tuesday, March 31, 2009
Now is the time to buy!
Mortgage Rates Hold Low Levels, NOW IS THE GREATEST TIME TO BUY!!
The Fed announcement last week about an expansion of the mortgage-backed securities (MBS) purchase program pushed mortgage rates down to the lowest levels in decades, according to the weekly surveys from the Mortgage Bankers Association (MBA) and Freddie Mac. This week, mortgage rates held the improvement, ending nearly unchanged from last Friday.
The Treasury unveiled a major new program on Monday which will establish public/private partnerships to purchase up to $1 trillion in troubled assets from banks. The program was well received by investors, and the news produced a large rally in the stock market. Significant to the mortgage market, removing these assets from banks' balance sheets should free up room for additional investments in mortgage loans.
This week's news in the housing sector was positive for a change. February Existing Home Sales rose 5% from January. Inventories of unsold homes were at a 9.7-month supply, about the same as last month. February New Home Sales also rose 5%. The Mortgage Bankers Association (MBA) revised higher its forecast for loan originations in 2009. The MBA now expects $3.2 trillion in mortgage originations this year, up from about $2.0 trillion in its prior forecast. The increase was due to a projected rise in activity as a result of lower mortgage rates. With rates hovering at historical loans and with the affordability index running at all time highs, if you are in the market for a new home, NOW IS THE GREATEST TIME TO BUY that we have seen since purchase statistics have been gathered. Many people will look back at this moment in time and say “I wish I would have bought” during this time.
The Fed announcement last week about an expansion of the mortgage-backed securities (MBS) purchase program pushed mortgage rates down to the lowest levels in decades, according to the weekly surveys from the Mortgage Bankers Association (MBA) and Freddie Mac. This week, mortgage rates held the improvement, ending nearly unchanged from last Friday.
The Treasury unveiled a major new program on Monday which will establish public/private partnerships to purchase up to $1 trillion in troubled assets from banks. The program was well received by investors, and the news produced a large rally in the stock market. Significant to the mortgage market, removing these assets from banks' balance sheets should free up room for additional investments in mortgage loans.
This week's news in the housing sector was positive for a change. February Existing Home Sales rose 5% from January. Inventories of unsold homes were at a 9.7-month supply, about the same as last month. February New Home Sales also rose 5%. The Mortgage Bankers Association (MBA) revised higher its forecast for loan originations in 2009. The MBA now expects $3.2 trillion in mortgage originations this year, up from about $2.0 trillion in its prior forecast. The increase was due to a projected rise in activity as a result of lower mortgage rates. With rates hovering at historical loans and with the affordability index running at all time highs, if you are in the market for a new home, NOW IS THE GREATEST TIME TO BUY that we have seen since purchase statistics have been gathered. Many people will look back at this moment in time and say “I wish I would have bought” during this time.
First Time Homebuyer Tax Credit
FIRST-TIME HOMEBUYER TAX CREDIT
Frequently Asked Questions
In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to
purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale.
For 2009, Congress has increased the credit to $8000 and made several additional improvements. This
revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.
Tax Credits -- The Basics
1. What’s this new homebuyer tax incentive for 2009?
The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009
purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the
house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home
for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or
after January 1, 2009 and before December 1, 2009.
2. Who is eligible?
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had
any ownership interest in a home in the three years previous to the day of the 2009 purchase.
3. How does a tax credit work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s
income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and
make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has
been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax
return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax
due. ($9,500 - $8000 = $1500)
4. So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability
for the year is only $6000?
This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was
$6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference
between $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000) Most taxpayers
determine their tax liability by referring to tables that the IRS prepares each year.
5. How does withholding affect my tax credit and my refund?
A few examples are provided at the end of this document. There are several steps in this calculation, but
most income tax software programs are equipped to make that determination.
6. Is there an income restriction?
FIRST-TIME HOMEBUYER TAX
CREDIT
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her
income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the
credit if their income is no more than $75,000. Married couples who file a Joint return may have income
of no more than $150,000.
7. How is my “income” determined?
For most individuals, income is defined and calculated in the same manner as their Adjusted Gross
Income (AGI) on their 1040 income tax return. AGI includes items like wages, salaries, interest and
dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final
number that appears on the bottom line of the front page of an IRS Form 1040.
8. What if I worked abroad for part of the year?
Some individuals have earned income and/or receive housing allowances while working outside the US.
Their income will be adjusted to reflect those items to measure Modified Adjusted Gross Income
(MAGI). Their eligibility for the credit will be based on their MAGI.
9. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the
credit?
Not always. The credit phases-out between $75,000 - $95,000 for singles and $150,000 - $170,000 for
married filing joint. The closer a buyer comes to the maximum phase-out amount, the smaller the credit
will be. The law provides a formula to gradually withdraw the credit. Thus, the credit will disappear after
an individual’s income reaches $95,000 (single return) or $170,000 (joint return).
For example, if a married couple had income of $165,000, their credit would be reduced by 75% as
shown:
Couple’s income $165,000
Income limit 150,000
Excess income $15,000
The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the
fraction is the excess income amount ($15,000). The denominator is $20,000 (specified by the statute).
In this example, the disallowed portion of the credit is 75% of $8000, or $6000
($15,000/$20,000 = 75% x $8000 = $6000)
Stated another way, only 25% of the credit amount would be allowed.
In this example, the allowable credit would be $2000 (25% x $8000 = $2000)
10. What’s the definition of “principal residence?”
Generally, a principal residence is the home where an individual spends most of his/her time (generally
defined as more than 50%). It is also defined as “owner-occupied” housing. The term includes singlefamily
detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling.
Even some houseboats or manufactured homes count as principal residences.
11. Are there restrictions on the location of the property?
Yes. The home must be located in the United States. Property located outside the US is not eligible for
the credit.
12. Are there restrictions related to the financing for the mortgage on the property?
In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit.
Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible
for the $7500 credit if the financing was obtained by means of mortgage revenue bonds.) Now,
mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser. (Mortgage revenue
bonds are tax-exempt bonds issued by a state housing agency. Proceeds from the bonds must be used for
below market loans to qualified buyers.)
13. Do I have to repay the 2009 tax credit?
NO. There is no repayment for 2009 tax credits.
14. Do 2008 purchasers still have to repay their tax credit?
YES. The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed
the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return.
Some Practical Questions
15. How do I apply for the credit?
There is no pre-purchase authorization, application or similar approval process. All eligible purchasers
simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form
5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov.
16. So I can’t use the credit amount as part of my downpayment?
No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but
found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the
purchase and settlement phase of the transaction.
17. So there’s no way to get any cash flow benefits before I file my tax return?
Yes, there is. Any first-time homebuyers who believe they are eligible for all or part of the credit can
modify their income tax withholding (through their employers) or adjust their quarterly estimated tax
payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their
employer, follow the instructions on the schedules provided and give the completed Form W-4 back to
the employer. In many cases their withholding would decrease and their take-home pay would increase.
Those who make estimated tax payments would make similar adjustments.
Some “Real World” Examples
18. What if I purchase later this year but can’t get to settlement before December 1?
The credit is available for purchases before December 1, 2009. A home is considered as “purchased”
when all events have occurred that transfer the title from the seller to the new purchaser. Thus, closings
must occur before December 1, 2009 for purchases to be eligible for the credit.
19. I haven’t even filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to
get the benefit of the credit?
You’ll have a helpful choice that might speed up the process. Eligible homebuyers who make their
purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on
December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15,
2009. They actually have three filing options.
· If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on
the 2008 return due on April 15.
· They can extend their 2008 income-tax filing until as late as October 15, 2009. (The IRS grants
automatic extensions, but the taxpayer must file for the extension. See www.irs.gov for
instructions on how to obtain an extension.)
· If they have filed their 2008 return before they purchase the home, they may file an amended
2008 tax return on Form 1040X. (Form 1040X is available at www.irs.gov)
Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on
their 2009 return. Their 2009 tax return is due on April 15, 2010.
20. I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7500 tax
credit on my 2008 return as prior law had permitted. Am I restricted to just a $7500 credit?
No, you would qualify for the $8000 credit. Eligible purchasers who have already claimed the $7500
credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008
tax year. This amended return will enable them to obtain the additional $500 credit amount.
21. If I claim my 2009 $8000 credit on my 2008 tax return, will I have to repay the credit just as the
2008 credits are repaid?
No. Congress anticipated this confusion and has made specific provision so that there would be no
repayment of 2009 credits that are claimed on 2008 returns.
22. I made an eligible purchase of a principal residence in May 2008 and claimed the $7500 credit on
my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial
interest in the home this spring and move in. Will he qualify for the $8000 credit, as well?
No. Any purchase of a principal residence (or interest in a principal residence) from a related party such
as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother
are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from
you, even if he is a first-time homebuyer.
23. I live in the District of Columbia. If I qualify as a first-time homebuyer, can I use both the $5000
DC credit and the $8000 credit?
No; double dipping is not allowed. You would be eligible for only the $8000 credit. This will be an
advantage because of the higher credit amount, plus the eligibility requirements for the $8000 credit are
somewhat more easily satisfied than the DC credit.
24. I know there is no repayment requirement for the $8000 credit. Will I ever have to repay any of
the credit back to the government?
One situation does require a recapture payment back to the government. If you claim the credit but then
sell the property within 3 years of the date of purchase, you are required to pay back the full amount of
any credit, including any refund you received from it. A few exceptions apply. (See below, #24). Note
that this same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This
provision is designed as an anti-flipping rule.
25. What if I die or get divorced or my property is ruined in a natural disaster within the 3 years?
The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within
the first three years of ownership, there is no recapture. Special rules make adjustments for people who
sell homes as part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home
that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to
condemnation by eminent domain by an authorized agency) within the first three years.
26. I have a home under construction. Am I eligible for the credit?
Yes, so long as you actually occupy the home before December 1, 2009.
WITHHOLDING EXAMPLES:
Note: The impact of estimated tax payments would be the same.
Situation 1: Sally plans her withholding so that her withholding is as close as possible to what she
anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000.
She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit.
Result: Sally’s withholding satisfies her tax liability and reduces it to zero. She will receive a refund of
the full $8000.
Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments;
Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and
estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time
homebuyers and are eligible for the $8000 refundable tax credit.
Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for
a refund of $1200 ($11,000 - $9800 = $1200). Because they are eligible for the refundable tax credit as
well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit =
$9200)
Situation 3: Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint
return. When they file their income tax return, their combined withholding is $5000. However, their total
tax liability is $7200, generating an additional income tax liability of $2200 ($7200 - $5000). They also
qualify for the $8000 first-time homebuyer tax credit.
Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to
pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible
for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition,
they will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they owed penalties and/or
interest, that amount would reduce the refund.
Frequently Asked Questions
In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to
purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale.
For 2009, Congress has increased the credit to $8000 and made several additional improvements. This
revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.
Tax Credits -- The Basics
1. What’s this new homebuyer tax incentive for 2009?
The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009
purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the
house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home
for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or
after January 1, 2009 and before December 1, 2009.
2. Who is eligible?
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had
any ownership interest in a home in the three years previous to the day of the 2009 purchase.
3. How does a tax credit work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s
income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and
make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has
been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax
return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax
due. ($9,500 - $8000 = $1500)
4. So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability
for the year is only $6000?
This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was
$6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference
between $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000) Most taxpayers
determine their tax liability by referring to tables that the IRS prepares each year.
5. How does withholding affect my tax credit and my refund?
A few examples are provided at the end of this document. There are several steps in this calculation, but
most income tax software programs are equipped to make that determination.
6. Is there an income restriction?
FIRST-TIME HOMEBUYER TAX
CREDIT
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her
income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the
credit if their income is no more than $75,000. Married couples who file a Joint return may have income
of no more than $150,000.
7. How is my “income” determined?
For most individuals, income is defined and calculated in the same manner as their Adjusted Gross
Income (AGI) on their 1040 income tax return. AGI includes items like wages, salaries, interest and
dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final
number that appears on the bottom line of the front page of an IRS Form 1040.
8. What if I worked abroad for part of the year?
Some individuals have earned income and/or receive housing allowances while working outside the US.
Their income will be adjusted to reflect those items to measure Modified Adjusted Gross Income
(MAGI). Their eligibility for the credit will be based on their MAGI.
9. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the
credit?
Not always. The credit phases-out between $75,000 - $95,000 for singles and $150,000 - $170,000 for
married filing joint. The closer a buyer comes to the maximum phase-out amount, the smaller the credit
will be. The law provides a formula to gradually withdraw the credit. Thus, the credit will disappear after
an individual’s income reaches $95,000 (single return) or $170,000 (joint return).
For example, if a married couple had income of $165,000, their credit would be reduced by 75% as
shown:
Couple’s income $165,000
Income limit 150,000
Excess income $15,000
The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the
fraction is the excess income amount ($15,000). The denominator is $20,000 (specified by the statute).
In this example, the disallowed portion of the credit is 75% of $8000, or $6000
($15,000/$20,000 = 75% x $8000 = $6000)
Stated another way, only 25% of the credit amount would be allowed.
In this example, the allowable credit would be $2000 (25% x $8000 = $2000)
10. What’s the definition of “principal residence?”
Generally, a principal residence is the home where an individual spends most of his/her time (generally
defined as more than 50%). It is also defined as “owner-occupied” housing. The term includes singlefamily
detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling.
Even some houseboats or manufactured homes count as principal residences.
11. Are there restrictions on the location of the property?
Yes. The home must be located in the United States. Property located outside the US is not eligible for
the credit.
12. Are there restrictions related to the financing for the mortgage on the property?
In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit.
Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible
for the $7500 credit if the financing was obtained by means of mortgage revenue bonds.) Now,
mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser. (Mortgage revenue
bonds are tax-exempt bonds issued by a state housing agency. Proceeds from the bonds must be used for
below market loans to qualified buyers.)
13. Do I have to repay the 2009 tax credit?
NO. There is no repayment for 2009 tax credits.
14. Do 2008 purchasers still have to repay their tax credit?
YES. The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed
the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return.
Some Practical Questions
15. How do I apply for the credit?
There is no pre-purchase authorization, application or similar approval process. All eligible purchasers
simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form
5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov.
16. So I can’t use the credit amount as part of my downpayment?
No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but
found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the
purchase and settlement phase of the transaction.
17. So there’s no way to get any cash flow benefits before I file my tax return?
Yes, there is. Any first-time homebuyers who believe they are eligible for all or part of the credit can
modify their income tax withholding (through their employers) or adjust their quarterly estimated tax
payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their
employer, follow the instructions on the schedules provided and give the completed Form W-4 back to
the employer. In many cases their withholding would decrease and their take-home pay would increase.
Those who make estimated tax payments would make similar adjustments.
Some “Real World” Examples
18. What if I purchase later this year but can’t get to settlement before December 1?
The credit is available for purchases before December 1, 2009. A home is considered as “purchased”
when all events have occurred that transfer the title from the seller to the new purchaser. Thus, closings
must occur before December 1, 2009 for purchases to be eligible for the credit.
19. I haven’t even filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to
get the benefit of the credit?
You’ll have a helpful choice that might speed up the process. Eligible homebuyers who make their
purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on
December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15,
2009. They actually have three filing options.
· If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on
the 2008 return due on April 15.
· They can extend their 2008 income-tax filing until as late as October 15, 2009. (The IRS grants
automatic extensions, but the taxpayer must file for the extension. See www.irs.gov for
instructions on how to obtain an extension.)
· If they have filed their 2008 return before they purchase the home, they may file an amended
2008 tax return on Form 1040X. (Form 1040X is available at www.irs.gov)
Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on
their 2009 return. Their 2009 tax return is due on April 15, 2010.
20. I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7500 tax
credit on my 2008 return as prior law had permitted. Am I restricted to just a $7500 credit?
No, you would qualify for the $8000 credit. Eligible purchasers who have already claimed the $7500
credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008
tax year. This amended return will enable them to obtain the additional $500 credit amount.
21. If I claim my 2009 $8000 credit on my 2008 tax return, will I have to repay the credit just as the
2008 credits are repaid?
No. Congress anticipated this confusion and has made specific provision so that there would be no
repayment of 2009 credits that are claimed on 2008 returns.
22. I made an eligible purchase of a principal residence in May 2008 and claimed the $7500 credit on
my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial
interest in the home this spring and move in. Will he qualify for the $8000 credit, as well?
No. Any purchase of a principal residence (or interest in a principal residence) from a related party such
as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother
are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from
you, even if he is a first-time homebuyer.
23. I live in the District of Columbia. If I qualify as a first-time homebuyer, can I use both the $5000
DC credit and the $8000 credit?
No; double dipping is not allowed. You would be eligible for only the $8000 credit. This will be an
advantage because of the higher credit amount, plus the eligibility requirements for the $8000 credit are
somewhat more easily satisfied than the DC credit.
24. I know there is no repayment requirement for the $8000 credit. Will I ever have to repay any of
the credit back to the government?
One situation does require a recapture payment back to the government. If you claim the credit but then
sell the property within 3 years of the date of purchase, you are required to pay back the full amount of
any credit, including any refund you received from it. A few exceptions apply. (See below, #24). Note
that this same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This
provision is designed as an anti-flipping rule.
25. What if I die or get divorced or my property is ruined in a natural disaster within the 3 years?
The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within
the first three years of ownership, there is no recapture. Special rules make adjustments for people who
sell homes as part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home
that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to
condemnation by eminent domain by an authorized agency) within the first three years.
26. I have a home under construction. Am I eligible for the credit?
Yes, so long as you actually occupy the home before December 1, 2009.
WITHHOLDING EXAMPLES:
Note: The impact of estimated tax payments would be the same.
Situation 1: Sally plans her withholding so that her withholding is as close as possible to what she
anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000.
She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit.
Result: Sally’s withholding satisfies her tax liability and reduces it to zero. She will receive a refund of
the full $8000.
Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments;
Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and
estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time
homebuyers and are eligible for the $8000 refundable tax credit.
Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for
a refund of $1200 ($11,000 - $9800 = $1200). Because they are eligible for the refundable tax credit as
well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit =
$9200)
Situation 3: Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint
return. When they file their income tax return, their combined withholding is $5000. However, their total
tax liability is $7200, generating an additional income tax liability of $2200 ($7200 - $5000). They also
qualify for the $8000 first-time homebuyer tax credit.
Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to
pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible
for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition,
they will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they owed penalties and/or
interest, that amount would reduce the refund.
Tuesday, March 17, 2009
First Time Homebuyer Tax Credit
FIRST-TIME HOMEBUYER TAX CREDIT
Frequently Asked Questions
In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to
purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale.
For 2009, Congress has increased the credit to $8000 and made several additional improvements. This
revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.
Tax Credits -- The Basics
1. What’s this new homebuyer tax incentive for 2009?
The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009
purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the
house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home
for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or
after January 1, 2009 and before December 1, 2009.
2. Who is eligible?
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had
any ownership interest in a home in the three years previous to the day of the 2009 purchase.
3. How does a tax credit work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s
income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and
make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has
been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax
return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax
due. ($9,500 - $8000 = $1500)
4. So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability
for the year is only $6000?
This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was
$6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference
between $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000) Most taxpayers
determine their tax liability by referring to tables that the IRS prepares each year.
5. How does withholding affect my tax credit and my refund?
A few examples are provided at the end of this document. There are several steps in this calculation, but
most income tax software programs are equipped to make that determination.
6. Is there an income restriction?
FIRST-TIME HOMEBUYER TAX
CREDIT
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her
income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the
credit if their income is no more than $75,000. Married couples who file a Joint return may have income
of no more than $150,000.
7. How is my “income” determined?
For most individuals, income is defined and calculated in the same manner as their Adjusted Gross
Income (AGI) on their 1040 income tax return. AGI includes items like wages, salaries, interest and
dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final
number that appears on the bottom line of the front page of an IRS Form 1040.
8. What if I worked abroad for part of the year?
Some individuals have earned income and/or receive housing allowances while working outside the US.
Their income will be adjusted to reflect those items to measure Modified Adjusted Gross Income
(MAGI). Their eligibility for the credit will be based on their MAGI.
9. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the
credit?
Not always. The credit phases-out between $75,000 - $95,000 for singles and $150,000 - $170,000 for
married filing joint. The closer a buyer comes to the maximum phase-out amount, the smaller the credit
will be. The law provides a formula to gradually withdraw the credit. Thus, the credit will disappear after
an individual’s income reaches $95,000 (single return) or $170,000 (joint return).
For example, if a married couple had income of $165,000, their credit would be reduced by 75% as
shown:
Couple’s income $165,000
Income limit 150,000
Excess income $15,000
The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the
fraction is the excess income amount ($15,000). The denominator is $20,000 (specified by the statute).
In this example, the disallowed portion of the credit is 75% of $8000, or $6000
($15,000/$20,000 = 75% x $8000 = $6000)
Stated another way, only 25% of the credit amount would be allowed.
In this example, the allowable credit would be $2000 (25% x $8000 = $2000)
10. What’s the definition of “principal residence?”
Generally, a principal residence is the home where an individual spends most of his/her time (generally
defined as more than 50%). It is also defined as “owner-occupied” housing. The term includes singlefamily
detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling.
Even some houseboats or manufactured homes count as principal residences.
11. Are there restrictions on the location of the property?
Yes. The home must be located in the United States. Property located outside the US is not eligible for
the credit.
12. Are there restrictions related to the financing for the mortgage on the property?
In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit.
Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible
for the $7500 credit if the financing was obtained by means of mortgage revenue bonds.) Now,
mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser. (Mortgage revenue
bonds are tax-exempt bonds issued by a state housing agency. Proceeds from the bonds must be used for
below market loans to qualified buyers.)
13. Do I have to repay the 2009 tax credit?
NO. There is no repayment for 2009 tax credits.
14. Do 2008 purchasers still have to repay their tax credit?
YES. The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed
the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return.
Some Practical Questions
15. How do I apply for the credit?
There is no pre-purchase authorization, application or similar approval process. All eligible purchasers
simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form
5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov.
16. So I can’t use the credit amount as part of my downpayment?
No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but
found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the
purchase and settlement phase of the transaction.
17. So there’s no way to get any cash flow benefits before I file my tax return?
Yes, there is. Any first-time homebuyers who believe they are eligible for all or part of the credit can
modify their income tax withholding (through their employers) or adjust their quarterly estimated tax
payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their
employer, follow the instructions on the schedules provided and give the completed Form W-4 back to
the employer. In many cases their withholding would decrease and their take-home pay would increase.
Those who make estimated tax payments would make similar adjustments.
Some “Real World” Examples
18. What if I purchase later this year but can’t get to settlement before December 1?
The credit is available for purchases before December 1, 2009. A home is considered as “purchased”
when all events have occurred that transfer the title from the seller to the new purchaser. Thus, closings
must occur before December 1, 2009 for purchases to be eligible for the credit.
19. I haven’t even filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to
get the benefit of the credit?
You’ll have a helpful choice that might speed up the process. Eligible homebuyers who make their
purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on
December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15,
2009. They actually have three filing options.
· If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on
the 2008 return due on April 15.
· They can extend their 2008 income-tax filing until as late as October 15, 2009. (The IRS grants
automatic extensions, but the taxpayer must file for the extension. See www.irs.gov for
instructions on how to obtain an extension.)
· If they have filed their 2008 return before they purchase the home, they may file an amended
2008 tax return on Form 1040X. (Form 1040X is available at www.irs.gov)
Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on
their 2009 return. Their 2009 tax return is due on April 15, 2010.
20. I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7500 tax
credit on my 2008 return as prior law had permitted. Am I restricted to just a $7500 credit?
No, you would qualify for the $8000 credit. Eligible purchasers who have already claimed the $7500
credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008
tax year. This amended return will enable them to obtain the additional $500 credit amount.
21. If I claim my 2009 $8000 credit on my 2008 tax return, will I have to repay the credit just as the
2008 credits are repaid?
No. Congress anticipated this confusion and has made specific provision so that there would be no
repayment of 2009 credits that are claimed on 2008 returns.
22. I made an eligible purchase of a principal residence in May 2008 and claimed the $7500 credit on
my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial
interest in the home this spring and move in. Will he qualify for the $8000 credit, as well?
No. Any purchase of a principal residence (or interest in a principal residence) from a related party such
as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother
are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from
you, even if he is a first-time homebuyer.
23. I live in the District of Columbia. If I qualify as a first-time homebuyer, can I use both the $5000
DC credit and the $8000 credit?
No; double dipping is not allowed. You would be eligible for only the $8000 credit. This will be an
advantage because of the higher credit amount, plus the eligibility requirements for the $8000 credit are
somewhat more easily satisfied than the DC credit.
24. I know there is no repayment requirement for the $8000 credit. Will I ever have to repay any of
the credit back to the government?
One situation does require a recapture payment back to the government. If you claim the credit but then
sell the property within 3 years of the date of purchase, you are required to pay back the full amount of
any credit, including any refund you received from it. A few exceptions apply. (See below, #24). Note
that this same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This
provision is designed as an anti-flipping rule.
25. What if I die or get divorced or my property is ruined in a natural disaster within the 3 years?
The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within
the first three years of ownership, there is no recapture. Special rules make adjustments for people who
sell homes as part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home
that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to
condemnation by eminent domain by an authorized agency) within the first three years.
26. I have a home under construction. Am I eligible for the credit?
Yes, so long as you actually occupy the home before December 1, 2009.
WITHHOLDING EXAMPLES:
Note: The impact of estimated tax payments would be the same.
Situation 1: Sally plans her withholding so that her withholding is as close as possible to what she
anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000.
She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit.
Result: Sally’s withholding satisfies her tax liability and reduces it to zero. She will receive a refund of
the full $8000.
Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments;
Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and
estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time
homebuyers and are eligible for the $8000 refundable tax credit.
Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for
a refund of $1200 ($11,000 - $9800 = $1200). Because they are eligible for the refundable tax credit as
well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit =
$9200)
Situation 3: Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint
return. When they file their income tax return, their combined withholding is $5000. However, their total
tax liability is $7200, generating an additional income tax liability of $2200 ($7200 - $5000). They also
qualify for the $8000 first-time homebuyer tax credit.
Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to
pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible
for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition,
they will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they owed penalties and/or
interest, that amount would reduce the refund.
Frequently Asked Questions
In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to
purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale.
For 2009, Congress has increased the credit to $8000 and made several additional improvements. This
revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.
Tax Credits -- The Basics
1. What’s this new homebuyer tax incentive for 2009?
The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009
purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the
house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home
for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or
after January 1, 2009 and before December 1, 2009.
2. Who is eligible?
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had
any ownership interest in a home in the three years previous to the day of the 2009 purchase.
3. How does a tax credit work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s
income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and
make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has
been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax
return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax
due. ($9,500 - $8000 = $1500)
4. So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability
for the year is only $6000?
This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was
$6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference
between $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000) Most taxpayers
determine their tax liability by referring to tables that the IRS prepares each year.
5. How does withholding affect my tax credit and my refund?
A few examples are provided at the end of this document. There are several steps in this calculation, but
most income tax software programs are equipped to make that determination.
6. Is there an income restriction?
FIRST-TIME HOMEBUYER TAX
CREDIT
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her
income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the
credit if their income is no more than $75,000. Married couples who file a Joint return may have income
of no more than $150,000.
7. How is my “income” determined?
For most individuals, income is defined and calculated in the same manner as their Adjusted Gross
Income (AGI) on their 1040 income tax return. AGI includes items like wages, salaries, interest and
dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final
number that appears on the bottom line of the front page of an IRS Form 1040.
8. What if I worked abroad for part of the year?
Some individuals have earned income and/or receive housing allowances while working outside the US.
Their income will be adjusted to reflect those items to measure Modified Adjusted Gross Income
(MAGI). Their eligibility for the credit will be based on their MAGI.
9. Do individuals with incomes higher than the $75,000 or $150,000 limits lose all the benefit of the
credit?
Not always. The credit phases-out between $75,000 - $95,000 for singles and $150,000 - $170,000 for
married filing joint. The closer a buyer comes to the maximum phase-out amount, the smaller the credit
will be. The law provides a formula to gradually withdraw the credit. Thus, the credit will disappear after
an individual’s income reaches $95,000 (single return) or $170,000 (joint return).
For example, if a married couple had income of $165,000, their credit would be reduced by 75% as
shown:
Couple’s income $165,000
Income limit 150,000
Excess income $15,000
The excess income amount ($15,000 in this example) is used to form a fraction. The numerator of the
fraction is the excess income amount ($15,000). The denominator is $20,000 (specified by the statute).
In this example, the disallowed portion of the credit is 75% of $8000, or $6000
($15,000/$20,000 = 75% x $8000 = $6000)
Stated another way, only 25% of the credit amount would be allowed.
In this example, the allowable credit would be $2000 (25% x $8000 = $2000)
10. What’s the definition of “principal residence?”
Generally, a principal residence is the home where an individual spends most of his/her time (generally
defined as more than 50%). It is also defined as “owner-occupied” housing. The term includes singlefamily
detached housing, condos or co-ops, townhouses or any similar type of new or existing dwelling.
Even some houseboats or manufactured homes count as principal residences.
11. Are there restrictions on the location of the property?
Yes. The home must be located in the United States. Property located outside the US is not eligible for
the credit.
12. Are there restrictions related to the financing for the mortgage on the property?
In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit.
Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible
for the $7500 credit if the financing was obtained by means of mortgage revenue bonds.) Now,
mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser. (Mortgage revenue
bonds are tax-exempt bonds issued by a state housing agency. Proceeds from the bonds must be used for
below market loans to qualified buyers.)
13. Do I have to repay the 2009 tax credit?
NO. There is no repayment for 2009 tax credits.
14. Do 2008 purchasers still have to repay their tax credit?
YES. The $7500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed
the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return.
Some Practical Questions
15. How do I apply for the credit?
There is no pre-purchase authorization, application or similar approval process. All eligible purchasers
simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form
5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov.
16. So I can’t use the credit amount as part of my downpayment?
No. Congress tried hard to devise a mechanism that would make the funds available for closing costs, but
found that pre-funding would require cumbersome processes that would, in effect, bring the IRS into the
purchase and settlement phase of the transaction.
17. So there’s no way to get any cash flow benefits before I file my tax return?
Yes, there is. Any first-time homebuyers who believe they are eligible for all or part of the credit can
modify their income tax withholding (through their employers) or adjust their quarterly estimated tax
payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their
employer, follow the instructions on the schedules provided and give the completed Form W-4 back to
the employer. In many cases their withholding would decrease and their take-home pay would increase.
Those who make estimated tax payments would make similar adjustments.
Some “Real World” Examples
18. What if I purchase later this year but can’t get to settlement before December 1?
The credit is available for purchases before December 1, 2009. A home is considered as “purchased”
when all events have occurred that transfer the title from the seller to the new purchaser. Thus, closings
must occur before December 1, 2009 for purchases to be eligible for the credit.
19. I haven’t even filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to
get the benefit of the credit?
You’ll have a helpful choice that might speed up the process. Eligible homebuyers who make their
purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on
December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15,
2009. They actually have three filing options.
· If they purchase between January 1, 2009 and April 15, 2009, they can claim the $8000 credit on
the 2008 return due on April 15.
· They can extend their 2008 income-tax filing until as late as October 15, 2009. (The IRS grants
automatic extensions, but the taxpayer must file for the extension. See www.irs.gov for
instructions on how to obtain an extension.)
· If they have filed their 2008 return before they purchase the home, they may file an amended
2008 tax return on Form 1040X. (Form 1040X is available at www.irs.gov)
Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on
their 2009 return. Their 2009 tax return is due on April 15, 2010.
20. I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7500 tax
credit on my 2008 return as prior law had permitted. Am I restricted to just a $7500 credit?
No, you would qualify for the $8000 credit. Eligible purchasers who have already claimed the $7500
credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008
tax year. This amended return will enable them to obtain the additional $500 credit amount.
21. If I claim my 2009 $8000 credit on my 2008 tax return, will I have to repay the credit just as the
2008 credits are repaid?
No. Congress anticipated this confusion and has made specific provision so that there would be no
repayment of 2009 credits that are claimed on 2008 returns.
22. I made an eligible purchase of a principal residence in May 2008 and claimed the $7500 credit on
my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial
interest in the home this spring and move in. Will he qualify for the $8000 credit, as well?
No. Any purchase of a principal residence (or interest in a principal residence) from a related party such
as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother
are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from
you, even if he is a first-time homebuyer.
23. I live in the District of Columbia. If I qualify as a first-time homebuyer, can I use both the $5000
DC credit and the $8000 credit?
No; double dipping is not allowed. You would be eligible for only the $8000 credit. This will be an
advantage because of the higher credit amount, plus the eligibility requirements for the $8000 credit are
somewhat more easily satisfied than the DC credit.
24. I know there is no repayment requirement for the $8000 credit. Will I ever have to repay any of
the credit back to the government?
One situation does require a recapture payment back to the government. If you claim the credit but then
sell the property within 3 years of the date of purchase, you are required to pay back the full amount of
any credit, including any refund you received from it. A few exceptions apply. (See below, #24). Note
that this same 3-year recapture rule applies, as well, to the $7500 credit available for 2008. This
provision is designed as an anti-flipping rule.
25. What if I die or get divorced or my property is ruined in a natural disaster within the 3 years?
The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within
the first three years of ownership, there is no recapture. Special rules make adjustments for people who
sell homes as part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home
that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to
condemnation by eminent domain by an authorized agency) within the first three years.
26. I have a home under construction. Am I eligible for the credit?
Yes, so long as you actually occupy the home before December 1, 2009.
WITHHOLDING EXAMPLES:
Note: The impact of estimated tax payments would be the same.
Situation 1: Sally plans her withholding so that her withholding is as close as possible to what she
anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000.
She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit.
Result: Sally’s withholding satisfies her tax liability and reduces it to zero. She will receive a refund of
the full $8000.
Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments;
Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and
estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time
homebuyers and are eligible for the $8000 refundable tax credit.
Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for
a refund of $1200 ($11,000 - $9800 = $1200). Because they are eligible for the refundable tax credit as
well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit =
$9200)
Situation 3: Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint
return. When they file their income tax return, their combined withholding is $5000. However, their total
tax liability is $7200, generating an additional income tax liability of $2200 ($7200 - $5000). They also
qualify for the $8000 first-time homebuyer tax credit.
Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to
pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible
for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition,
they will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they owed penalties and/or
interest, that amount would reduce the refund.
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