Qualifying purchases must take place after November 6, 2009 but on or before April 30, 2010. Homes closing on or before June 30, 2010 may also qualify for this tax credit if the sales contract was signed by the April 30, 2010 deadline.
Who is Eligible to Claim the $6,500 Tax Credit
Home owners who have owned a home for at least five consecutive years of the eight years prior to the purchase date purchasing any kind of home as their primary residence are eligible to claim this credit. The home does not have to be more expensive than their previous home to qualify, but if married both spouses must pass the test.
An additional $1500, an $8000 Tax Credit, is availble to those who are considered first time home buyers. Home buyers are considered "first time" home buyers if they have not owned real property in the last three years. Again, if married both spouses must pass the test.
How is the Amount of the Tax Credit Determined
The tax credit is equal to 10% of the home’s purchase price up to a maximum of $6,500. Homes with a purchase price over $800,000 are not eligible.
Income Limits for Claiming the Tax Credit
Single taxpayers making $125,000 or less and married taxpayers filing a joint return earning $225,000 or less qualify. Taxpayers with modified adjusted gross incomes have additional requirements to qualify for the program. Some taxpayers with higher incomes may be eligible for a partial tax credit.
Claiming the Tax Credit and Required Documentation
The tax credit is claimed on a federal income tax return. For 2009, taxpayers will use IRS Form 5405 is used to determine the amount of the credit which is then entered on line 67 of the 1040 income tax form. A copy of the HUD-1 Settlement Statement from the closing must be attached to Form 5405 as documented proof of the home purchase.
Types of Homes that Qualify for the Tax Credit
Any single-family home, townhouse, condominium, manufactured home or houseboat that will be used as a principal residence will qualify for the credit. Home purchase price must be less than $800,000. Homes may not be purchased from other family members, including parents, grandparents, children, spouse, etc…
New homes that are under construction qualify and are considered purchased on the date the owner first occupies the house.
Tax Credit is Refundable
Typically the tax credit will offset any tax liability the taxpayer owes, but can be claimed even if the taxpayer has little or no federal income tax liability to offset. Normally this results in the Government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.
Tax Credit May be Applied to FHA Down-payment and Closing Costs
Buyers finance the purchase of their new home through a FHA-insured mortgage may, under certain guidelines, apply their anticipated tax credit toward their home purchase at closing instead of waiting for to file their 2009 or 2010 income tax returns.
The information in this article is intended to provide prospective home buyers basic information about the available tax credit. The author strongly advises readers to consult a qualified tax advisor about their unique situation.
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