Qualified first-time homebuyers only have until November 30th to finalize the purchase of a home and receive up to $8,000 from the government. Since it takes a few months or more to locate a home, obtain financing, and close on the property, now's the time to check out the open houses in the neighborhoods where you want to live. It probably also makes sense to get pre-approved for a mortgage in order to save time once you find your dream home.
In an attempt to buoy the housing market while still in office, President Bush introduced a $7,500 first-time homebuyer credit as part of the Housing Assistance Tax Act of 2008. This tax credit was to apply to homes purchased between 4/9/08 and 6/30/09, and was equal to the lower of 10% of the home's purchase price or $7,500.
"The 2008 version of this tax break contained a unique feature, however," explains Andrew Schwartz CPA, founder of FindAGoodCPA.com (www.FindAGoodCPA.com), a site where taxpayers can locate a tax professional in their metropolitan area based on the professional's specialty. "Anyone receiving this tax credit would need to repay the amount of the credit over fifteen years, making it more like an interest-free loan from the government than a true tax credit. So if you got the full $7,500 first-time homebuyer credit, you would report and pay an extra $500 annually as part of your tax return until you repaid the government in full."
Extended and Improved
President Obama extended and improved the first-time homebuyer credit as part of the American Recovery and Reinvestment Act of 2009. Here are some of the 2009 changes to this tax break:
· Extended the time for first-time homebuyers to purchase a home and qualify for this tax break from 6/30/09 to 11/30/09.
· Increased the tax break by $500 - from $7,500 for homes purchased between 4/9/08 and 12/31/08 to $8,000 for homes purchased between 1/1/09 and 11/30/09.
· Waived the repayment requirement for homes purchased in 2009 that are owned and used as a principal residence for at least three years.
Who Qualifies?
According to the IRS, "Taxpayers who have not owned another principal residence at any time during the three years prior to the date of purchase" qualify for this tax credit. If you're married, neither spouse could have been homeowners during that three-year window.
Like pretty much every tax break introduced since 1986, this tax break includes an income limitation excluding high-income and middle-income taxpayers from claiming this credit. Both versions of this tax break have identical phase-out provisions - single individuals with Adjusted Gross Income (AGI) of $75K - $95K and married couples with AGI of $150K - $170K. Earn more than $95k if single or $170k if married, and you're out of luck.
Unmarried Homeowners
How does this tax credit work when two unmarried individuals purchase a home together? If the income for one of the buyer's exceeds the phase-out limit, the answer is simple. The other buyer whose income falls below the phase-out limitations claims the full tax credit.
Otherwise, the first-time homebuyer credit may be allocated between the taxpayers using any reasonable method. Check out the IRS' report on the Allocation of First-Time Homebuyer Credit Between Taxpayers Who Are Not Married (available at www.irs.gov) for examples of how they recommend new homebuyers split this tax break.
Claiming the Credit
"Claiming the First-Time Homebuyer tax credit is pretty simple. Just complete and attach a Form 5405 to either your federal income tax return (Form 1040) or an amended tax return (Form 1040X). If you purchased your home between 4/9/08 and 12/31/08, your only option is to claim this credit as part of your 2008 tax filings," says Schwartz.
Anyone who purchases a home between 1/1/09 and 11/30/09 has a decision to make. They can either amend their 2008 tax return and claim the credit as part of their 2008 tax filings or claim the tax credit in connection with their 2009 Form 1040.
"One key factor is whether your AGI falls below the threshold of $75k for single individuals or $150k for married couples in 2008 and/or 2009. If your income fell below the applicable threshold in 2008, go ahead and amend your 2008 tax return to get back this $8,000 tax credit as soon as possible. Otherwise, you might be better off waiting to claim the credit as part of your 2009 tax return," says Schwartz.
About Andrew D. Schwartz CPA
Andrew D. Schwartz, CPA is the editor and founder of www.FindAGoodCPA.com, a site where taxpayers can interact with CPAs who specialize in a variety of niches. Schwartz has provided tax and basic financial planning advice in interviews with various media, including the Washington Post, SmartMoney, and Wall Street Journal. He is available for interviews.
The IRS wants to help parents of working children avoid the headaches and costs of preparing tax returns for their kids who won't earn enough to be taxed. All a child or college student needs to do is write the word "Exempt" in Box 7 of the Form ...
Released On: 7/5/2015
Views: 3144
There is still time to take steps to minimize your 2010 tax burden. As the year winds down, evaluate which of these strategies might make sense for you.
Released On: 11/29/2010
Views: 4067
The clock is ticking to apply for a lucrative tax credit or grant to fund biomedical research. The IRS is accepting applications now through July 21st for researchers interested in participating in the Qualified Therapeutic Discovery Project pro ...
Released On: 6/21/2010
Views: 4132
Don't let the IRS disallow your deductions just because you didn't keep a list of the items that were donated. Protect your tax deductible donations by recording your donated goods with UDoGood.
Released On: 2/20/2010
Views: 2687
Effective January 1, 2010, the income limitation preventing people from converting their IRAs and other qualified retirement accounts to a Roth IRA disappears. How can you take advantage of this opportunity while paying the least amount of taxes?
Released On: 11/29/2009
Views: 3975
With the future of social security a big question mark, and corporate pension plans on the path toward extinction, it's up to people to save as much as they can for their own retirement. Even so, the IRS has recently announced that most of the re ...
Released On: 10/28/2009
Views: 2309
Each year in November, the government bumps up the maximum social security taxes that a person can pay. For the first time in 35 years, there will be no increase to the maximum social security wage base.
Released On: 10/19/2009
Views: 4029
The MDTAXES Network is an affiliation of CPAs who specialize in the tax and accounting issues affecting physicians, dentists, and psychologists and their practices.
Released On: 7/31/2009
Views: 2859
While Social Security and Medicare taxes are generally withheld from the salaries of non-government employees, those trainees classified as "student employees" are exempt from this 7.65% tax. The FICA rebate would put approximately $3,800 per eac ...
Released On: 7/27/2009
Views: 2200
The housing market stinks. And the decreased home values continue to wreak havoc on the credit markets. In an attempt to entice new homeowners into the market, the government instituted a tax credit of up to $8,000 for first-time homebuyers.
Released On: 7/1/2009
Views: 2584
President Obama views EHR as a key ingredient to controlling health care costs without reducing the current level of care. By providing a $44k subsidy to physicians who implement EHR, Obama hopes to see the medical community finally embrace Elec ...
Released On: 6/19/2009
Views: 2288
Starting January 1, 2009 you can claim a tax credit equal to 30% of the first $5,000 spent on high-efficiency heat pumps, air conditioners, and water heaters, or energy-efficient windows, doors, insulation materials, and certain roofs. You can al ...
Released On: 5/31/2009
Views: 2922
When you convert an IRA or other qualified retirement account to a Roth IRA, you take money that is growing tax deferred and turn it into Roth money that grows tax-free. The downside to converting is that you most likely will owe some taxes on t ...
Released On: 5/7/2009
Views: 1966
Besides the Fourth of July or perhaps Cinco de Mayo, few dates carry the cache of April 15th. With April 15th quickly approaching, now's the time to either file your tax returns or submit an extension request with the IRS.
Released On: 3/30/2009
Views: 2129
Tax planning is a year round process. Even so, there are still steps you can take as the year winds down to minimize your tax burden. Make sure not to overlook possible tax changes to be enacted in 2009 when Obama takes office and the Democrats ...
Released On: 12/7/2008
Views: 2410
With the future of social security a big question mark, and corporate pension plans on the path toward extinction, it's up to people to save as much as they can for their own retirement. The IRS has recently announced that most of the retirement ...
Released On: 11/2/2008
Views: 3978
With bank failures on the rise, individuals with deposits in excess of FDIC limits have a variety of tax breaks available to them in the event that one of their banks should fail.
Released On: 7/28/2008
Views: 1896
With cumulative sales of 58,872 hybrid vehicles, the allowable credit for Honda hybrids is on track to be cut in half on January 1, 2008 and then will be fully phased out on December 31, 2008.
Released On: 9/14/2007
Views: 1307