The First Time Home Buyer Tax Credit: An Overview
Purchasing a home for the first time can be a daunting experience. As a first-time homebuyer, you might have many important questions such as “”How much should I pay for a down payment?”” or “”What is the best mortgage for me?”” One factor that might help in the decision-making process is the first-time homebuyer tax credit.
The first-time homebuyer tax credit was initially introduced in 2008 by the U.S. government to help stimulate the economy and to encourage first-time homebuyers to purchase homes. The credit was extended in 2009 and then again in 2010. In this article, we will discuss the basics of the first-time homebuyer tax credit and how it works.
What is the First Time Home Buyer Tax Credit?
The first-time homebuyer tax credit is a credit that first-time homebuyers can apply for when they buy their first home. The credit applies to the purchase of a primary residence and can only be claimed once. The credit is intended to help with the upfront costs of purchasing a home, such as a down payment or closing costs.
The credit was introduced in 2008 and gives first-time homebuyers a credit of up to $7,500 or 10% of the purchase price of the home, whichever is less. The credit was initially set to expire in 2009 but was extended to 2010.
In 2010, the credit was extended again and expanded to include move-up buyers. Move-up buyers were defined as those who already owned a primary residence and were looking to purchase a new primary residence. The credit for move-up buyers was $6,500 or 10% of the purchase price of the new home, whichever is less.
Who Qualifies for the First Time Home Buyer Tax Credit?
To qualify for the first-time homebuyer tax credit, you must meet certain eligibility criteria. The most important eligibility criteria are:
1. You must be a first-time homebuyer or a move-up buyer.
2. You must have purchased a primary residence.
3. You must have purchased the home between the specified dates.
4. You must meet certain income requirements.
5. You must not have owned a home in the three years before the purchase of the new home.
First-time homebuyers are defined as those who have not owned a home in the three years before the purchase of the new home. Move-up buyers are defined as those who already own a primary residence and are looking to purchase a new primary residence.
To qualify for the credit, you must have purchased a primary residence. A primary residence is the home where you live most of the time. You cannot claim the credit for a vacation home or investment property.
The credit is only available to those who purchased a home between the specified dates. For the initial credit, you must have purchased a home between April 9, 2008, and July 1, 2009. For the extended credit, you must have purchased a home between November 30, 2009, and April 30, 2010. The credit for move-up buyers was also extended to April 30, 2010.
To qualify for the credit, you must also meet certain income requirements. The income limit for the initial credit was $75,000 for single taxpayers and $150,000 for married taxpayers filing jointly. The income limit for the extended credit was $125,000 for single taxpayers and $225,000 for married taxpayers filing jointly.
How to Claim the First Time Home Buyer Tax Credit
To claim the first-time homebuyer tax credit, you must file Form 5405 with your tax return. The form requires the following information:
1. Your name and Social Security number.
2. The address of the home you purchased.
3. The date you closed on the home.
4. The purchase price of the home.
5. The amount of the credit you are claiming.
You also need to attach a of your settlement statement, also known as the HUD-1, to the form. The settlement statement provides details such as the purchase price of the home, the amount of your down payment, and any closing costs you paid.
If you are claiming the extended credit for move-up buyers, you must also provide proof that you owned and lived in your previous primary residence for at least five years out of the eight years before the purchase of the new home.
When Can You Claim the First Time Home Buyer Tax Credit?
You can claim the first-time homebuyer tax credit when you file your tax return for the year in which you purchased the home. For example, if you purchased a home in 2020, you would claim the credit when you file your tax return for 2020.
If you purchased a home in 2008 and claimed the credit, you must repay the credit over 15 years beginning with the 2010 tax year. The credit is repaid as an additional tax on your tax return each year until the credit is fully repaid.
The credit for move-up buyers does not have to be repaid unless you sell the new home within three years of the purchase.
Tips for First-Time Homebuyers
As a first-time homebuyer, you might find the process of purchasing a home overwhelming. Here are some tips to help:
1. Do your research. Research the homebuying process, different types of mortgages, and neighborhoods that fit your needs and budget.
2. Get pre-approved for a loan. Getting pre-approved for a loan can give you an idea of the amount you can borrow and help you to narrow your search.
3. Know your budget. Determine how much you can comfortably afford to pay each month for your mortgage, insurance, and other expenses.
4. Work with a real estate agent. A real estate agent can help you find homes that meet your needs and budget and guide you through the purchasing process.
5. Get a home inspection. A home inspection can help identify any potential issues with the home before you purchase it.
6. Don’t rush. Take your time and don’t rush into making a decision. Purchasing a home is a big investment and it’s important to make the right decision.
The first-time homebuyer tax credit was introduced by the U.S. government to help stimulate the economy and encourage first-time homebuyers to purchase homes. The credit applies to the purchase of a primary residence and can only be claimed once. To qualify for the credit, you must meet certain eligibility criteria and file Form 5405 with your tax return. As a first-time homebuyer, it’s important to research the home-buying process, know your budget, and work with a real estate agent to find the right home for you.
What Happened To the First Time Home Buyer Tax Credit?
One of the biggest ever federal incentives for people new to home ownership, the first time home buyer tax credit was a program created in 2008 under the Bush administration. This tax credit gave new homeowners up to $7500 or 10 percent of the purchase price, whichever was lower. However, no new filers will be able to claim the first time home buyer tax credit in 2012. What happened to the credit, and why isn’t it being brought back with foreclosure rates still high and interest rates still low? We’ll take a look in this brief guide.
When Was the First Time Home Buyer Tax Credit Available?
People buying homes for the first time in 2008-2010 were able to take advantage of the first time home buyer tax credit. This tax credit was created in order to stimulate home ownership in the United States after housing prices collapsed.
For a very small number of families, purchases made in 2011 also qualified for the first time home buyer tax credit. Some military and intelligence community members were also allowed to include purchases made in 2011, because some of them may have been enlisted at the time when the credits were available for first time homebuyers.
Triggers for Repaying your First Time Home Buyer Tax Credit
You may have to repay the tax credit if you sell your home or no longer consider the home your primary residence depending on the year you received the tax credit in the first place. Repayment scenarios are provided below:
Bought Home in 2008 and Received First Time Home Buyer Tax Credit
If you sell the home to a related party in the next 15 years after you bought the home, you need to repay the full credit minus any amount you already repaid. Complete Form 5405 and attach the form to your federal tax return for the year the home was sold. The repayment is required even if you suffered a loss on the property.
Bought Home in 2009 or 2010 and Received First Time Home Buyer Tax Credit
If you sold the house to a related party within 36 months of buying the house, you need to repay the full tax credit. Complete Form 5405 and attach the completed form to your federal tax return for the year you sold the home. The repayment will either increase the taxes you owe or reduce your refund.
Bought Home in 2008, 2009, or 2010 and the Home was Destroyed or Condemned
If the home was destroyed or condemned and you did not replace, rebuild, or buy a new home within two years, you need to repay the full First Time Home Buyer Tax Credit. Complete Form 5405 and attach the form to your federal tax return for the year the two-year grace period ends. You’ll have to complete Form 5405 and attach it to your federal tax return to during the year of the destruction or condemnation in order to report the damage as well.
Bought Home in 2008, 2009, or 2010 and Converted Home to Business or Rental Property
If you converted the home to a business or rental property, you need to repay the unpaid balance of the First Time Home Buyer Tax Credit. Complete Form 5405 and attach the form to the federal tax return for the year the home was converted to a rental or business property.
Why Did the Tax Credit Expire?
While the first time home buyer tax credit was a good benefit for people who could already afford to purchase a house, the fact that it took until taxes were due to receive the benefit made it less useful for people who had trouble putting together a down payment. The credit had to be repaid if you sold the house before it was paid off if you purchased a house in 2008, a major hassle for any buyer and one that may cause problems for some taxpayers for years to come. In 2009 these restrictions were lifted and the credits no longer need to be repaid.
Initially, the tax credit was extended in the Worker, Home Ownership, and Business Assistance Act of 2009. Not only was it extended in duration to include homes bought in 2009 and 2010, but it also expanded income limits for the credits and allowed a credit of up to $6500 for people buying a home who were not first time homebuyers.
Will There Be Another First Time Home Buyers Tax Credit?
The problem with the tax credit was simply that it didn’t do enough to stem the tide of foreclosures and stimulate the housing market. The credit ignored the economic realities for most first time homebuyers and focused too much on giving a tax payment rather than making credit or down payment assistance available for people affected by the recession.
Today, there is no one in Congress seriously proposing that these tax credits be re-established. Without credit being made available by banks and an improvement to the problems of underemployment and unemployment, the tax credit was benefiting few people and was not making a significant impact on housing prices or foreclosure rates.
Questions about the Tax Credit
If you have any questions about the tax credit for your home, you can call (800) 919-0352. You can also consult with a tax return preparer and have them contact the IRS if needed.