Frequently Asked Questions
The Home Buyer Tax Credit Extension & Expansion authorizes a tax credit of up to $8,000 for qualified first-time home buyers or up to $6,500 for qualified current homeowners purchasing a principal residence between November 6, 2009 and April 30, 2010.The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.
Who is eligible to claim the tax credit?
First-time home buyers who purchase a home between January 1, 2009 and April 30, 2010.Current home owners purchasing a home between November 6, 2009 and April 30, 2010, who have used the home being sold or vacated as a principal residence for five consecutive years within the last eight.
Contracts must be written and in-hand by April 30, 2010, however buyers have until June 30, 2010 to close on the property.
What is the definition of a first-time home 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 tests the homeownership history of both the home buyer and his/her spouse.For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000 for first-time buyers and $6,500 for repeat buyers.
Are there any income limits for claiming the tax credit?
The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $125,000 for single taxpayers and $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
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. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) 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.
I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?
You do not have to close before December 1. Once the new legislation was signed, it was as if the November 30 date had never existed. Therefore, so long as the contract settles before April 30, the purchaser will be eligible for the credit.
Existing homeowner credit: Must the new house cost more than the old house?
No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6,500 credit.
I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement after November 6. Will I qualify for the $6,500 tax credit?
Yes. The new income limitations go into effect November 6, 2010. The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if you go to settlement after November 6, 2010, you should be eligible for the credit (or a portion of the credit if you're within the phase-out range).
I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchse on October 30, 2009. I will be covered, however, by the new income limits. If I go to settlement after November 6, will I be eligible for a credit?
Yes. The existing homeowner credit goes into effect for purchases after November 6, 2010. There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.
I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a non-negotiable price of $825,000. Will I be able to receive any of the $6,500 tax credit?
No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.
I owned my home for 10 years, but sold it two years ago and have been renting since. If I purchase a home, will I be eligible for the $6,500 tax credit if I meet all the other eligibility tests?
Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6,500 credit. For example, say John and his wife bought a home in 2000 and lived there until 2008 when they got divorced. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword is "consecutive." As long as he lived in that house for 5 years straight, what he did since doesn't impact eligibility.
Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after November 6, 2009 and before July 1, 2010.In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.
I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three 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.
I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.
Source: National Association of REALTORS®
