A First Time Home Buyer Tax Credit is a tax credit offered by the government to first-time homebuyers. A tax credit is a dollar-for-dollar reduction in taxes owed. This means that if you owe $2,000 in taxes and have a $1,000 tax credit, you will only need to pay $1,000 in taxes. The First Time Home Buyer Tax Credit is specifically designed to help new home buyers cover the cost of purchasing their first home.
How does the First Time Home Buyer Tax Credit Work?
The First Time Home Buyer Tax Credit can be claimed on your federal income tax return. The tax credit is equal to 10% of the purchase price of your home, up to a maximum of $8,000. This means that if you purchase a home for $80,000 or more, you will only receive the maximum credit of $8,000.
To be eligible for the First Time Home Buyer Tax Credit, you must meet certain requirements. These requirements include:
1. The home must be your primary residence: You cannot claim the tax credit if you purchase a second home or investment property.
2. You must be a first-time homebuyer: The tax credit is only available to individuals who have never owned a home before or have not owned a home in the past three years.
3. Income limits: The tax credit is phased out for individuals earning more than $125,000 per year or couples earning more than $225,000 per year.
4. Purchase price limits: The tax credit is only available for homes with a purchase price of $800,000 or less.
The First Time Home Buyer Tax Credit Extension
In light of the recent economic downturn, there has been a renewed interest in the First Time Home Buyer Tax Credit. In July 2020, Senator Mike Rounds of South Dakota introduced a bill to extend the tax credit for first-time homebuyers. The bill, known as the First-Time Homebuyer Pandemic Savings Act, proposes to extend the tax credit from $8,000 to $15,000 and would make other changes to the program.
The proposed bill would increase the maximum tax credit from $8,000 to $15,000, which would provide first-time homebuyers with even more financial assistance to purchase their first home. The income limits for the tax credit would also be raised from $125,000 to $150,000 for individuals and from $225,000 to $300,000 for couples. The purchase price limits would remain the same at $800,000.
The bill also proposes to allow first-time homebuyers to access their Individual Retirement Accounts (IRAs) without penalty to fund their home purchase. Currently, individuals under the age of 59 ½ who withdraw money from their IRA will face penalties of up to 10%. The proposed bill would allow first-time homebuyers to withdraw up to $25,000 from their IRA without penalty to fund their home purchase.
The First-Time Homebuyer Pandemic Savings Act has not yet been passed into law. However, there is significant support for the bill from both Democrats and Republicans. If the bill is passed, it will provide significant financial assistance to first-time homebuyers and help boost the real estate market.
How to Claim the First Time Home Buyer Tax Credit
To claim the First Time Home Buyer Tax Credit, you will need to file the proper paperwork with your federal income tax return. You must attach a copy of your settlement statement, which provides details about the purchase price and date of the home. You will also need to file Form 5405 with your tax return. This form will calculate the amount of the tax credit you are eligible to receive.
If you purchased your home in 2018 or earlier, you must claim the tax credit on your tax return for the year in which you purchased the home. If you purchased your home in 2019, you must claim the tax credit on your tax return for the year in which you purchased the home. If you purchased your home in 2020 or later, you may be eligible to receive the proposed extension of the tax credit if it is passed into law.
Conclusion
The First Time Home Buyer Tax Credit is a valuable tool for first-time homebuyers looking to purchase their first home. The proposed extension of the tax credit would provide even more financial assistance to first-time homebuyers and help boost the real estate market during these challenging economic times. If you are a first-time homebuyer, it is important to understand the eligibility requirements for the tax credit and to file the necessary forms with your federal income tax return. With the support of both Democrats and Republicans, there is hope that the First-Time Homebuyer Pandemic Savings Act will be passed into law, providing significant financial assistance to first-time homebuyers across the country.
What is the First Time Home Buyer Tax Credit Extension?
An individual may be able to obtain the first-time homebuyer tax credit if they are regarded as an eligible buyer who has purchased a home as their primary residence in the taxable years of 2008, 2009 or 2010. The eligibility requirements will vary depending on the year of the purchase. Moreover, there are specific benefits attached to the military members or federal employees.
The First Time Home Buyer Tax Credit will reduce the buyer’s tax bill—or increase their refund—depending on the taxes the individual owes. The Internal Revenue Service will refund the credit, even if they own no tax or the credit is more than the taxes owed. Legislation was officially enacted in July of 2010 formally extending the closing deadline from June 30th to September 30th for all eligible home purchasers. Furthermore, legislative alterations that took place in November of 2009 extended the First Time Home Buyer Tax Credit and added documentation requirements for securing the credit.
The American Recovery and Reinvestment Act of 2009 officially enacted the First Time Home Buyer Tax Credit Extension by increasing the credit figure to $8,000 for purchases made in 2009 before the first of December. Additionally, the Worker, Homeownership and Business Assistance Act of 2009 extended the deadline—any taxpayer who purchased a home before May 1st of 2010 is eligible for the First Time Home Buyer Tax Credit Extension—the buyer must have officially closed on the home before September 30th of 2010.
