If you’re planning to claim the credit and haven’t started looking for a home, your clock is now officially ticking. You must be closed on your new home on or before December 1.
Based on a purchase closing of 60 days; your $8,000 is in jeopardy unless you go under contract prior to October 2, 2009. That’s 71 days from now.
Use it or lose it. The First-Time Home Buyer Tax Credit is part of the American Recovery and Reinvestment Act of 2009. In it, Congress authorized a first-time homebuyer tax credit of up to $8,000 for home buyers meeting certain qualifying criteria. The program’s goal was to stimulate entry-level home purchases.
Now, the IRS definition of “first-time home buyer” may be different from what you expect. According to the IRS, a first-time home buyer is anyone who has not owned a “main home” in the last 3 years with “main home” defined as a home in which a person has lived “for most of the time”. Main homes can include traditional homes, trailers, and other residence types.
For couples, married or otherwise, both home buyers must be first-timers to be tax credit-eligible.
Moreover, not every first-time home buyer is eligible for the $8,000 First Time Home Buyer Tax Credit. Some notable exclusions include first-time home buyers who:
File taxes separately and whose adjusted gross income exceeds $95,000
File taxes jointly and whose adjusted gross income exceeds $170,000
Acquire property from a mother, father, sibling or child
Acquire property from an entity in which they’re a majority owner
Acquire the home by gift or inheritance
And then, the First-Time Home Buyer Tax Credit may not deliver the full $8,000.
The tax credit is limited to 10% of the home’s purchase price and it also diminishes as home buyer income rises. Tax credit phase-outs start at $75,000 for homebuyers filing separately and $150,000 on joint returns.
Assuming you qualify, the good news is that it’s easy to claim your tax credit.
Buy and close on a new, “main” home before December 1, 2009.
Submit IRS Form 5405 with your 2009 tax returns in April 2010.
Meanwhile, the program does come with some “catches”. For example, if you sell your home, or cease to use it as your “main home” within 36 months of purchase, the IRS will require a full payback. There are only a few allowable exceptions to this policy and you shouldn’t count on being granted one.
Not moving in the next 3 years? No worries!