IRS - First Time Buers - Tax Credits

Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years

Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years

IR-20080-106, Sept. 16,2008

new tax credit included In the recently enacted Housing and Economic Recovery Act of 2008.

Available for a limited time only, the credit:

• Applies to home purchases after ApMI 8, 2008, and before July 1, 2009,

• Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.

• Is fully refundable, meaning that the credit will be paid out to eligible texpayers, even if

they owe no tax or the credit is more than the tax that they owe.

However, the credit operates much like an interest-free loan, because it must be repaid over

a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly

claims the maximum available credit of $7,500 on his or her 2008 federal iMome tax retum

must begin repaying the credit by including one-fifteenth of this amount, or $500, as an

additional tax on his Or her 2010 retum.

Eligible taxpayers will claim the credit on new IRS Form 5405. This form, along with further

instructions on claiming the first-time homebuyer credit, will be iMluded in 2008 tax forms and

Instructions and be available later this year on IRS,gov, the IRS Web site.

If you bought a home recently, or are considering buying one, the following questions and

limited time. Vacation homes and rental property are not eligible. You must buy the home

after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date

is the first date you occupy the home.

Taxpayers who owned a main home at any time duMng the three years prior to the date of

purchase are not eligible fOr the credit. This meanS that first-time homebuyers and those who

have not owned a home in the three years prior to a purchase can qualify for the credit.

If you make an eligible purchase in 2008, you claim the first-lime homebuyer credit on your

your 2008 (or amended 2008 retum) or 2009 retum.

A. The credit is 10 percent of the purchase price of the home, with a maximum available

credit of $7,500 for either a single taxpayer or a marMed couple filing jointly. The limit Is

$3,750 for a married person filing a separate return. In most cases, the full credit will be

available for homes costing $75,000 Or more. Whatever the size of the credit a taxpayer

A. Yes. The credit is reduced Or eliminated for hioher-incom.. laxoavers.

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Tax Credit to Aid First-Time Homebuyers; Must Be Repaid Over 15 Years

The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your

foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to

$170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.

This means the full credit is available for married couples filing a Joint return whose MAGI is

$150,000 or less and for other taxpayers whose MAGI is $75,000 or less.

home:

• Your income exceeds the phase-out range. This means joint filers with MAGI of

$170,000 and above and other taxpayers with MAGI of $95,000 and above.

• You buy your home from a close relative. This Includas your spouse, parent,

grandparent, child or grandchild.

• You stop using your home as your main home.

• You sell your home before the end of the year.

• You are a nonresident alien.

• You are, or were, eligible to claim the District of Columbia first-time homebuyer credit

for any taxable year.

• Your home financing comes from tax-exempt mortgage revenua bonds.

• You owned another main home at any time during the three years prior to the date of

purchase. For example, if you bought a home on July 1,2008, you cannot take the

credit for that home if you owned, or had an ownership interest in, another main home

at any time from July 2, 2005, through July 1, 2008.

repaid in 15 equel annual Installments beginning with the second tax year after the year the

credit Is claimed. Th" repayment amount is included as an additional tax on the taxpayer'S

income tax return for that year. For example, if you properly claim a $7,500 first-time

homebuyer credit on your 2006 return, you will begin paying it back on your 2010 tax return.

Normally, $500 will be due each year from 2010 to 2024.

You may need to adjust your withholding or make quarterly estimated tax payments to enSure

you are not under-withheld.

However, some exceptions apply to the repayment rule. They include:

• If you die, any remaining annual installments are not due. If you filed a joint return and

then you die, your surviving spouse would be required to repay his or her half of the

remeining repayment amount.

• If you stop using the home as your main home, all remaining annual installments

become due on the return for the year that happens. This includes situations where

the main home becomes a vacation home or is converted to business or rental

property. There are special rules for involuntary conversions. Taxpayers are urged to

consult a professional to determine the tax consequences of an Involuntary

oonversion.

• If you sell your home, all remaining annual installments become due on the return for

the year of sale. The repayment is limited to the amount of gain on the sale, if the

home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the

sale, the remaining annual installments may be reduced or even eliminated.

Taxpayers are urged to consult a professional to determine the tax consequences of a

sale.

former spouse, that person is responsible for making all SUbsequent installment

payments.

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