Important Update - H.R. 5623 for possible tax credit extension(updated 30th June 2010) New Bill H.R. 5623 has been introduced in the Congress for extension of the deadline of the Home Buyer Tax Credit to 01 October 2010. This extension bill was passed by the U.S. House of representatives - read House passes Home buyer tax credit extension and will also be passed by the Senate tomorrow.. Visit this blog for latest updates on the tax credit extension. For knowing more about $8000 First time home buyer tax credit and its extension, continue reading the article ....
2010 - 2011 extension of $8000 Housing tax creditTopic covered in this article on 8000 housing tax credit.
- How does the $8000 housing tax credit work ? - 7 important points which every first time home buyer MUST know.
- Details on the 2010 extension of the home buyer tax credit, and 2011 extension for certain group of people (military, foreign service, intelligence).
- $6500 tax credit for repeat-home buyers.
- Will the $8000 housing tax credit be extended in 2011?
- Links to official websites of Federal Housing Tax credit and IRS.
How does $8000 housing tax credit work?The $789 billion economic stimulus package passed by Obama government in 2009, contained a key housing stimulus bill designed to help first time home buyers in order to revive the US housing market. If you are a potential home buyer and moreover if you are a first time home buyer (i.e. if you have not owned or purchased a principal residence in the past 3 years) this housing stimulus can help you provide a refundable tax credit of 8000 USD. This $8000 incentive, earlier meant to help those buying a house in 2009, has now been extended to 2010 as well. This may very well be your last chance to take advantage of this bill, since the chances of its extension in 2011 are very slim (read below).
In order to understand the 8000 housing tax credit details you need to understand the following seven important points.
- What is the definition of First time home buyer? -The law defines "First time home buyer" as a home buyer who has not owned a principal residence for the last three years. For married tax payers, both you and your spouse must be 'first time home buyers' in order to qualify for the housing tax credit. For unmarried joint purchases, either of the qualifying partner may be a 'first time home buyer'. In this case the $8000 housing tax credit can be allocated to any of the partners. Read more about $8000 home buyer tax credit for married people. For unmarried joint purchases read my post on $8000 home buyer tax credit for unmarried joint purchases. Note the if you have bought a home 3 years ago and have rented it since then, then it does not count as principal residence and you may still be eligible for the $8000 first time home buyer stimulus. Both rental property and vacation homes do not count as principal residence. Moreover, if the new home you are purchasing is a mobile home or condo, and it is going to be your principal residence, you still qualify for the home buyer tax credit. Even building a home on a land (as opposed to purchasing a ready-made house) qualifies for the $8000 housing tax credit. Even non resident aliens who are not US citizens may qualify for this tax credit. Read my post on Do I qualify for the $8000 Home buyer tax credit?
- Dates of home purchase and deadlines - In order to qualify for the home buyer tax credit, the first time home buyer must purchase the house after January 1 2009 and on or before April 30, 2010. However, here is one thing you should remember about the deadline for the housing tax credit - it is enough to enter a binding contract on or before April 30 2010, you then have June 30, 2010 to complete the purchase.
- How much tax credit will home buyers get? - Although this tax credit is referred to as $8000 housing tax credit, remember that the total amount of tax credit a home buyer gets is equal to 10% of the purchase price of the new house up to maximum of $8000. Thus in order to get a full tax credit of $8000 your purchased property must be above $80,000 in value.
- Income Limits for $8000 home buyer tax credit: First time home buyers with modified gross annual income of $75,000 get full benefit of this housing tax credit. The tax credit is gradually reduced for those with income between $75,000 to $95,000 and finally a home buyer gets no tax credit if his/her modified gross annual income is more than $95,000. For married taxpayers, the home buyer tax credit is gradually reduced to zero for modified gross annual income between $150,000 to $170,000.
- This is a Refundable Tax Credit - This 8000 housing tax credit is a tax credit and not a tax deduction. That is qualified first time home buyers deduct $8000 from their total tax owed to the IRS and NOT the total taxable income. Moreover a refundable tax credit means that in case the total taxes you owe to the IRS are less than $8000, you can actually get a refund for the balance amount. Also this tax credit (unlike the $7500 tax credit) does not need to be repaid back to the IRS.
- How to claim the $8000 tax credit? (documents needed, procedure) - If you qualify for the tax credit, you can either claim it in your 2009 or 2010 tax return. In order to do this, you will have to fill Form 5405 (new revised version). Also, it is important to note that those who are eligible for the 8000 tax credit will not be able to file their tax returns electronically because of the additional documents required. In addition to the Form 5405, the first time home buyers (i) Copy of Form HUD-1 (Settlement Statement) showing all parties signatures and other details like property address, price, date of purchase.(ii) If you are purchasing a mobile home, then instead of settlement statement you need a copy of executed retail sales showing similar information.(iii) If you have a newly constructed home, where a Settlement statement or Form HUD-1 is not available, you will have to submit a copy of Certificate of Occupancy showing details like Owners name, property address, and date.
- You do not qualify for the tax credit in the following cases: (i) Homes costing over $800,000 are not eligible for $8000 first time home buyer tax credit.(ii) The tax credit cannot be claimed if the property or purchased house was received as a gift or inheritance or if it was acquired from a relative. There is no way you can purchase a house from your parents for example and qualify for this tax credit.(iii) You have to continue residing in the new home for three consecutive years after you purchase it. If at any point before 3 years are complete, you sell or rent the house, then you have to repay the tax credit to the IRS.(iv) A person below 18 years or a dependent is not eligible for the credit.
2010 and 2011 extension of home buyer tax creditThe deadline for the $8000 housing tax credit, as passed in 2009, was December 1 2009. However this tax credit has been extended in 2010 as well and the new deadline for purchase is April 30, 2010. As explained above, April 30, 2010 is just the deadline to enter a binding contract. The deadline to complete the final purchase is June 30, 2010.
If you are are a member of Military, foreign service or Intelligence community, you get an additional one year extension of the $8000 home buyer tax credit. The deadline for people in this category is April 30, 2011. Please visit Federal housing tax credit 2011 extension for Military, Foreign Service and Intelligence Community to read more on this topic.
$6500 tax credit for repeat home buyersWhile the above mentioned tax credit is only for first time home buyers (i.e. those who have not owned a principal residence in past 3 years), there is also a $6500 tax credit for move-up or repeat home buyers. In order to qualify for this $6500 you need to be a repeat-home buyer which by definition means that you must have owned and resided in the same house for at least 5 consecutive years of the last 8 years before date of purchase. Also the deadline for qualifying for this tax credit is the same, April 30 2010. Note that although this tax credit is sometimes called $6500 tax credit for move-up home buyers, it does not necessarily mean that your new house has to be more expensive than the previous one in order to qualify. Please visit $6500 tax credit for repeat home buyers to read additional details.
Why the extension of home buyer tax credit in 2011 is unlikely?update: June 30, 2010: Although nothing is known about 2011 extension of the Housing stimulus, the reasoning behind the speculation below was indeed proved to be wrong because of further deterioration in the housing market. A new bill, H.R. 5623 has been introduced in the Congress, which if passed will extend 8000 housing tax credit by another 5 months. This bill has already been backed by the House of representatives and will likely be passed by the Senate tomorrow. (bookmark this page for updates).
The part below this was written before the bill was introduced...
Note that even if the tax credit were to be extended in 2011, it will always be announced at the very last moment. However there are strong reasons to believe that there will not be any 2011 extension of this housing tax credit (except for people in Military, Foreign Service and Intelligence community). The recovery made by the housing market in 2009 and in part of 2010, is the strongest argument supporting the idea that this tax credit will not be extended in 2011. Reports from Bloomberg say that there has been about 2.7% surge in new home sales in March 2010, and a 4.3% increase in the median home prices. So 2010 may very well be the final deadline for the housing tax credit.
Further Reading on 8000 home buyer tax creditThis article was designed to solve all questions First Time home buyers may have regarding the $8000 housing tax credit. However if you still need more information, don't forget to visit
- IRS First Time Home Buyer Tax Credit Answers (Government Website).
- Federal Housing Tax Credit (Government website).
- Other Tax Credits, Rebates in Economic Stimulus Package.
- $6500 tax credit for repeat home buyers.
- The 200+ comments to this housing stimulus article (below).
Federal Tax Breaks, IRS Tax Credits, Tax Rebates in 2009 Economic Stimulus Package that maybe of interest to you
FAQ: Can you claim your $8000 first time home buyer tax credit in 2008 tax return itself or do you have to wait till you file 2009 tax return? The law allows any qualified purchases made in 2009 to be treated as if the purchase was made on December 31 2008. You can claim the $8000 first time home buyer tax credit in 2008 tax return itself by filing form 5405 according to the latest IRS ruling. Thus you can get the benefit of $8000 in 2008 tax return itself.
Income Tax tip for first time home-buyers: If you know you qualify for the $8000 home buyer credit there is no need to wait to file your 2009 tax return in order to get benefit of this housing stimulus. First time home buyers are actually permitted to reduce their income tax withholding by the amount equal to housing credit, i.e. $8000. You can then use this 'extra cash' got by increase in your take home pay for down-payment.
Quick Answers to common queries: