Homebuyer credit extended, enhanced
A November 6, 2009 law extends the popular first-time homebuyer credit of up to $8,000 and creates a new credit worth as much as $6,500 for long-time homeowners who purchase a new principal home. TurboTax will walk you through the steps to claim the credit for both first-time and long-time buyers.
First-time homebuyer credit:
- The deadline for the $8,000 first-time homebuyer credit is extended past November 30, 2009.
- Buyers must enter into a binding contract to buy a home on or before April 30, 2010 and close on the home sale by June 30, 2010.
- For purchases after November 6, 2009, the income ceiling to qualify for the full credit is raised, from $75,000 to $125,000 adjusted gross income for single filers and from $150,000 to $225,000 adjusted gross income for married couples filing jointly.
Long-time homebuyer credit:
- A new $6,500 credit is available for homebuyers who have owned a principal home for a period of five consecutive years in the eight years prior to purchase.
- The credit applies to purchases made after November 6, 2009. Buyers must enter into a binding contract to buy a home on or before April 30, 2010 and close on the home sale by June 30, 2010.
- The income ceiling to qualify for the full credit is $125,000 adjusted gross income for single filers and $225,000 adjusted gross income for married couples filing jointly.
- For more detailed information, see New $6,500 Homebuyer Credit for Long-Time Homeowners.
Some military, federal employees get an extra one year to qualify
Military service members and certain other federal employees serving outside the country have an additional year to to qualify for a homebuyer credit. Eligible taxpayers must enter into a binding contract to buy a principal residence on or before April 30, 2011.
Important requirements about claiming the homebuyer credit
How and when you claim the credit (on Form 5405) on your tax return depends on when you purchase your home.
- If you bought your home at any time during 2009, you can claim the credit when you file your 2009 taxes in 2010.
- If you purchased your home on or before November 6, 2009, you have the option to amend your 2008 tax return. But based on IRS information, claiming the credit when you file your regular 2009 return is likely to get the credit to you faster. See First-Time Homebuyer Credit: How to Amend 2008 Return for 2009 Purchase.
- If you bought your home after November 6 and before January 1, 2010, you can not amend your 2008 tax return using TurboTax, as a result of changes the IRS made to Form 5405. used to claim the credit. You can claim the credit when you file your 2009 tax return.
- Those who buy in 2010 can choose to claim the credit when they file either their 2009 or 2010 tax returns.
NOTE: Taxpayers who claim the credit on their 2009 tax return must file a paper - not an electronic (e-filed) - return because certain documents verifying the home purchase must be attached and filed by mail.
TurboTax customers claiming the credit should prepare their tax return as usual, then print and mail it, ensuring that a completed Form 5405 and the required homebuyer-credit documents are included. Read more about the required documents below.
Home-purchase documents required by the IRS
On February 12, 2010, the IRS clarified its rules for signatures on settlement statements, in regions of the country where such signatures are not normally required. Please see below for more information. For both first-time and long-time homebuyers:
- For purchasers of conventional homes, a copy of Form HUD-1, Settlement Statement, or other settlement statement, showing all parties' names and signatures, property address, sales price and date of purchase.
- For purchasers of mobile homes who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
- For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.
For long-time homebuyers only:
To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. To claim the credit, long-time residents must attach the documents above. The IRS also recommends attaching any of the following to document the five-consecutive-year period:
- Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
- Property tax records or
- Homeowner’s insurance records.
Regarding the IRS requirement for signatures on settlement documents: While IRS instructions state that a valid home-purchase settlement statement should have the signatures of both the buyer and the seller, the agency said it recognizes that in some parts of the country, such signatures are not legally required.
Therefore, the IRS will accept a settlement statement, typically a Form Hud-1, if it is complete and valid according to local law. Even if the signature of the buyer isn't required on the settlement form, the IRS encourages buyers to sign the form before attaching it to the tax return. And, if the signature of the seller isn't on the settlement document, the IRS advises that the buyer still sign the document.
Hoping to buy a home in 2010 and getting the credit?
Keep in mind that you can not claim it on your tax return until you have closed the sale.
Consider filing your 2009 taxes early in 2010, especially if you're getting a refund. If and when you buy a home, you can amend your 2009 return to claim the credit.
How the first-time homebuyer credit works
The following rules apply to the first-time homebuyer credit:
(To learn the rules for the long-time homebuyer credit, see New $6,500 Homebuyer Credit for Long-Time Homeowners. )
- The credit is equal to 10 percent of the home purchase price, up to a limit of $8,000.
- If you qualify for the credit when you file your regular tax return, either your refund will be increased or your taxes reduced by as much as $8,000.
- You can keep the credit, as long as you own the home for at least three years.
- The credit does not apply to any home purchased for more than $800,000.
- The credit is not available if you buy your home from a close relative, such as your spouse, parents, grandparent, child or grandchild -- or a close relative of your spouse.
What qualifies as a principal residence?
It can be a house, a condo, co-op, house trailer or houseboat, within the United States. Vacation and rental homes are not eligible.
Who is considered a "first-time" homebuyer?
- You are, if you've never owned a home as your principal residence.
- However, you could qualify even if you’ve owned a home before, just not as your principal residence during the three years prior to the purchase.
Your principal residence is where you live for most of the year.
Important: Married couples cannot qualify for the credit unless both spouses meet the three-year rule.
Other restrictions on homebuyers:
- You must be 18 years or older on the date of purchase. If married, at least one spouse must be 18 or older.
- You can't be claimed as a dependent by another taxpayer during the year you buy the home.
What are the income limitations?
For purchases on or before November 6, 2009:
For single taxpayers, the credit decreases as modified adjusted gross income rises above $75,000, and it disappears altogether above $95,000.
For married couples, the credit starts to decrease at modified adjusted gross of $150,000 and disappears after $170,000.
Modified adjusted gross income is your adjusted gross income, or AGI (your gross income minus certain deductions such as IRAs and alimony) with tax-free foreign income counted.
For purchases after November 6, 2009
For single taxpayers, the credit decreases as modified adjusted gross income rises above $125,000 and it disappears altogether above $145,000.
For married couples, the credit starts to decrease at modified adjusted gross of $225,000 and disappears after $245,000.
How does the credit affect the taxes I owe and the refund I get?
The credit reduces your tax liability, that is, the amount of taxes you are required to pay. Depending on your tax withholdings, you could get a bigger refund or owe less in taxes when you file.
If, for example, your taxes owed for one year are $7,000, you’ve had $4,000 withheld from your wages, and you buy a home worth $100,000 in January of 2010, the housing credit would entitle you to a refund, as shown below.
Tax liability | $7,000 |
Minus housing credit | -8,000 |
Minus withholding | -4,000 |
Refund | $5,000 |
Tax Liability | $10,000 |
Minus housing credit | -8,000 |
Minus withholding | 0 |
Taxes due | $2,000 |
Important considerations for single people who buy a home with a co-signer or other single person
NOTE: Certain single taxpayers who purchase a home need to follow specific steps in TurboTax to claim the full credit. These taxpayers could include:
- A single person who buys a home with a co-signer, such as a parent,
- Two or more single people who buy a home together and only one qualifies for the credit.
If you are single and buy a first-time home as a part owner, you can claim the full credit as long as you qualify for the credit. You'll need to follow certain steps within TurboTax to ensure that you get the full credit.
For example: If you are a single person who qualifies for the credit and you have a co-signer or co-owner, such as a parent who does not qualify, you can still claim 100% of the credit.
When using TurboTax, indicate that you own 100% of the home as shown on the screen shot below. If you indicate you own less than 100%, you will not get the full credit, even though you qualify for it. Remember, though, there is only one credit allowed per home.
