Aug 10
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Overview
You may be able to take the first-time homebuyer credit if you are an eligible buyer who purchased a home as your primary residence in 2008, 2009 or 2010. Eligibility varies depending upon the year of your purchase. And there are specific benefits (see link at end of article) that certain members of the military and certain other federal employees have, such as an additional year to buy a home in the United States, if they otherwise qualify for the credit.
This credit reduces your tax bill or increases your refund depending on the tax you owe. The IRS will refund the credit, even if you owe no tax or the credit is more than the tax owed.
Legislation enacted in July 2010 extended the closing deadline from June 30 to Sept. 30, 2010, for eligible homebuyers. Legislative changes in November 2009 expanded and extended the credit and also added documentation requirements for claiming the credit. Due to increased compliance checks by the IRS, failure to submit documentation will slow down the issuance of any applicable refund.
Repaying the Credit and Understanding your IRS Notice
Some individuals will be required to repay the credit. The IRS notifies taxpayers who claim the first-time homebuyer credit of any applicable repayment requirements. There are different IRS letters for different situations, including a purchase of a home in 2008, 2009 or 2010, a sale of a main home or a change in the use of the main home.
Deadline for Making Qualifying Purchases in 2010
You must meet the required deadlines to be eligible to claim the credit.
- You must have bought — or entered into a binding contract to buy — a principal residence on or before April 30, 2010.
- If you entered into a binding contract by April 30, 2010, you must have closed (gone to settlement) on the home on or before Sept. 30, 2010 (legislation passed in July 2010 extended the June 30 deadline previously in effect).
How to Claim the Credit
2009 or 2010 Tax Return
For qualifying purchases in 2010, you have the option of claiming the credit on either your 2010 or 2009 return. For qualifying purchases in 2009, you have the option of claiming the credit on either your 2009 or 2008 return. If your return for a particular year has already been filed, use From 1040X to amend your return for that year, along with Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and a properly executed copy of a settlement statement used to complete the purchase.
- Purchasers of conventional homes should include a copy of Form HUD-1, Settlement Statement, or other settlement statement, showing all parties’ names, property address, sales price and date of purchase.
- Purchasers of mobile homes who are unable to get a settlement statement should include a copy of the executed retail sales contract showing all parties’ names, property address, purchase price and date of purchase.
- Purchasers of newly constructed homes where a settlement statement is not available should include a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.
Settlement Statement Signatures: While the Form 5405 instructions indicate that a properly executed settlement statement should show the signatures of all parties, the IRS recognizes that the elements of the settlement document, often a Form HUD-1, may vary from jurisdiction to jurisdiction and may not reflect the signatures of the buyer and seller. The settlement statement that must be attached to the return is considered to be properly executed if it is complete and valid according to local law. In locations where signatures are not required the IRS encourages the buyer to sign the settlement statement prior to attaching it to the tax return even in cases where the settlement form does not include a signature line.
Long-Time Residents: The November 2009 legislation extends the credit to long-time residents of the same main home if they purchase a new main home. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. For long-time residents claiming the credit, the IRS recommends attaching, in addition to the documents described above, any of the following documentation of the five-consecutive-year period:
- Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
- Property tax records or
- Homeowner’s insurance records.
2008 Tax Return
For qualifying purchases in 2008 and 2009, you have the option of claiming the credit on your 2008 return. Homebuyers may use Form 5405 . If your 2008 tax return has already been filed, use Form 1040X to amend your 2008 tax return along with Form 5405.
Details Regarding the First-Time Homebuyer Credit, Expansions and Extensions
For 2008 Home Purchases
The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.
For 2009 Home Purchases
The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1. The Worker, Homeownership and Business Assistance Act of 2009 extended the deadline — taxpayers who had a binding contract to purchase a home before May 1, 2010, became eligible for the credit. Buyers must have closed on the home before July 1, 2010. That closing deadline was extended to Sept. 30, 2010 by the Homebuyer Assistance and Improvement Act of 2010, enacted July 2, 2010.
For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.
First-time homebuyers who purchased a home in 2009 can claim the credit on either a 2008 tax return or a 2009 tax return. The credit may not be claimed before the closing date.
For 2010 Home Purchases
The Worker, Homeownership and Business Assistance Act of 2009, signed into law on Nov. 6, 2009, extended and expanded the first-time homebuyer credit allowed by previous Acts.
Under this law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010, and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.
This law also:
- Authorizes the credit for long-time homeowners buying a new principal residence.
- Raises the income limitations for homeowners claiming the credit.
Members of the military, Foreign Service and intelligence community serving outside the U.S. should find out about the benefits in the law that apply particularly to them.
For a home purchased in 2010, the credit does not have to be paid back unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.
Questions and Answers
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