For most working Americans, the 2010 Home Buyer Tax Credit increases next year’s income tax refund by $6,500-to-$8,000. Not to be confused with a tax deduction or exemption, the housing incentive is a fully-refundable tax credit; it can even be collected by taxpayers that don’t owe any taxes for the year. The credit does not have to be repaid unless you move out of the qualifying home sooner than the 3rd anniversary of your home purchase.
Since this incentive involves income tax, the guidelines and qualifying criteria are defined in IRS terms. On the IRS documentation you’ll find a verbose list of qualifying criteria, but for most Americans it comes down to these: (1) Ownership History, (2) Personal Income, (3) Purchase Date.
First-Time Buyers and Repeat Buyers Can Qualify
True First-time buyers
You are eligible for the full $8,000 tax credit.
Born-again first-time buyers
If you owned previously, but have not owned a principle residence during the 3-year period before your purchase, then you are eligible for the full $8,000 tax credit.
Repeat buyers
Looking back at the 8-year period before your purchase, if you owned and lived in the same primary residence for any consecutive 5-year period, then you are eligible for the $6,500 tax credit.
The IRS defines a First-Time Buyer as a taxpayer that has not owned a principle residence at any point in the previous 36 months. If you sold your home in 2001 and have not purchased again since, then you qualify for the full credit as a first-time buyer. It’s that simple.
For taxpayers that are not considered first-time buyers, there is a second test: Considering the previous 8 years, did you own and live in the same home for any consecutive 5-year period? For example, if you purchased a home in January 2002, lived there until you sold the home in April 2007, then you qualify for the credit as a repeat buyer.
Income Requirements
Home buyers with annual income under $125,000 (single) or $225,000 (married & filing jointly) are eligible for the full tax credit. A reduced credit is available to buyers within $20,000 of the defined income limits.
Note that the income figures used for this purpose are defined as Modified Adjusted Gross Income - in simple terms, it’s your gross income, minus certain adjustments and ‘above-the-line’ deductions. Itemized deductions and personal exemptions are not involved in this calculation. For most taxpayers, this figure can be found on line #4 of the 1040-EZ form or the first number on page 2 of the 1040 and 1040A forms.
When Does The Tax Credit End?
November 6th, 2009
The current tax credit program applies to homes purchased after November 6th, 2009.
April 30th, 2010
This is the deadline to sign a purchase contract if you want to qualify for the credit.
June 30th, 2010
The last day to close on a qualifying home purchase, or take occupancy of a newly constructed qualifying home.
Plan on closing during the Spring of 2010 if you want to qualify with no stress. At minimum you must execute a binding purchase contract by the end of April 2010, then you have until the end of June to close the purchase. At this point we do not expect another extension of the program, so expect a rush of last-minute buyers next Spring. If you don’t like making quick decisions, it’s a good idea to start browsing homes for sale before the deadline approaches - at least to get an idea of what’s available in your market.
If you’re having a home built, even if you already own the lot, you can still qualify for the credit. In this case the date of first occupancy is used for qualifying, rather than closing date.
Basic Qualifying Requirements
Only US citizens and resident aliens, as defined by the IRS, are eligible. The IRS determines resident status with a lengthy flowchart (see it here), but the most significant criteria is regarding how much of the past three years you’ve spent on American soil.
The home you purchase must be under $800,000, must be on U.S. soil, and may not be purchased from a relative or spouse. Single-family detached homes, townhouses, condos, mobile homes, and even house boats are eligible as long as they’re purchased to be your primary residence. At this point I’m not aware of any restrictions on distressed property (foreclosures, short sales HUD homes).
How Do I Claim My Check?
There are several ways to obtain the money once you qualify, but the simplest way is via the next income tax return you file; it’s as easy as filling out a single form to determine the exact amount you qualify for. The amount of your credit is applied directly to you for the 2009/2010 income tax return, and the credit is fully ‘refundable’. That means that even if you didn’t owe taxes, you can still get the credit in the form of a refund check from the IRS. A copy of the settlement statement from your purchase must be attached as proof of your purchase.
If you need the money from the tax credit before your income taxes are file, there are alternatives to obtain the credit faster. The IRS suggests that taxpayers reduce their withholding amount on their employee W-4. In simple terms, that means you reduce the amount of taxes taken out of your paychecks, in anticipation of the amount of your credit. Be careful with that scenario, however, because you will owe the IRS this difference if you do not follow through with the home purchase. There are also options for buyers in most states to apply the credit to the down payment and/or closing costs at the time of home purchase.
For more information on the tax credit, including options for using the credit towards your purchase, try the IRS website, this site from the National Association of Home Builders, ask your accountant, or turn to your favorite Realtor.
Johnny Schiro, Broker
Icon Real Estate
The Woodlands, Texas
About the author
Johnny Schiro is a Houston Realtor and co-owner of Icon Real Estate — an independent residential brokerage in The Woodlands, Texas. Johnny writes mostly about local market trends, buying & selling strategies, and industry insight. Comments and feedback encouraged.