7 Common Questions Regarding the First Time Buyer Tax Credit
Please check with your accountant or tax professional regarding definitive answers to the first-time buyer tax credit. The following 7 questions should give you some guidance regarding qualification for the home buyer credit. You can refer to IRS form 5405 for complete detail.
Do you have questions about the $8,000 first time home buyer tax credit? You are not alone. The following should provide you with some answers:
Who qualifies as a first-time home buyer?
You are considered a first-time buyer if:
- You purchased your primary residence after April 8, 2008 and prior to December 1, 2009.
- You, or your spouse, haven’t owned another primary residence in the 3 years prior to your purchase of the qualifying home.
How much is the first-time home buyer credit? Everyone seems to refer to $8,000, but I have heard a credit of $7,500
- For a home purchased in 2008 the credit amount is $7,500 (or 10 percent of the purchase price, whichever is less). In this example, the credit is essentially a loan that is payable over a 15 year period and is interest free. If you sell the home, you are obligated to repay the remaining balance.
- For a primary residence purchased in 2009, the credit amount is $8,000 (or 10 percent of the purchase price, whichever is less).
You only need repay the loan if you move from the property, or it ceases to be your primary residence within the 36 months after you close on the property. - NOTE: The amounts will differ if you are a married couple filing separately ($3,750 and $4,000)
Does a Condominium or Town-home qualify for the credit?
Yes. The definition of a primary-residence is broad enough to include a condo or townhome. In fact, other house types such as trailers, co-ops, or even a house boat can qualify.
What if I don’t ever reach a level where I pay income taxes? How will I receive the credit?
Even if you don’t owe taxes, you will receive the credit. You will receive in the form of a check from the IRS.
Are there any income restrictions?
For those with gross income above $75,000, or $150,000 for joint filers, the credit will phase out (sliding scale). When your adjusted gross income is $90,000 or $170,000 for joint filers, the credit is completely phased out.
Can I purchase from a relative just to receive the credit?
Related party transactions are excluded. The IRS defines a related party as:
- Your spouse, parents, grandparents, or lineal descendants such as children, or grandchildren.
- A business in which you directly or indirectly own more than 50% of the shares of the entity.
- A business in which you own more than 50% interest or profits interest.
What IRS form is needed?
IRS Form 5405 should be filed with your Form 1040.