- Days left

What you need to know about the housing tax credit

for sale signsBy now, you've probably heard lots of chatter about the first-time home buyers credit. The tax credit was originally part of the American Recovery and Reinvestment Act of 2009 and applied only to first-time homebuyers.

In 2009, bowing to pressure from the real estate community, Congress passed the Worker, Homeownership, and Business Assistance Act, which extended and expanded the credit. The credit now applies to sales from January 1, 2009, through April 30, 2010.

For purposes of the credit, a first-time homebuyer is defined as someone who has not owned a principal residence during the last three years. For married taxpayers, you have to consider the history of both the homebuyer and the homebuyer's spouse. If one spouse is disqualified, neither can claim the credit. This means that, so long as you are considered married (even if you were not married to your spouse for the entirety of the past three years), you do not qualify for the first-time homebuyer credit if your spouse does not qualify.
The same rule does not apply for unmarried individuals who purchase a home together. The law allows those taxpayers to split the credit or allocate the amount to any buyer who qualifies as a first-time buyer. See Notice 2009-12 for more details.

The credit is equal to 10% of the home's purchase price up to a maximum of $8,000. A taxpayer who purchased a home for $75,000 would be entitled to 10%, or $7,500. A taxpayer who purchased a home for $80,000 would be entitled to the maximum credit, or $8,000. But a taxpayer who purchased a home for more, say, $150,000, would still only be entitled to the maximum credit, or $8,000.

For purposes of the credit, a home refers to your principal residence -- meaning where you intend to live -- and includes new construction as well as homes for resale. A home could be a house, condo, manufactured, or mobile home; however, if you purchase your home from a close relative, the credit will be disallowed. If you previously purchased a vacation home or rental real estate that was not used as a principal residence, you can still take advantage of the credit.

For sales made before November 6, 2009, income and phaseout restrictions apply, with single taxpayers maxing out at $75,000 and married filing jointly couples topping out at $150,000 in order to qualify for the full tax credit. However, the new act ups the income and phaseout restrictions. For sales after November 6, 2009, the act increases the income limits to $125,000 for single taxpayers and $225,000 for married couples filing jointly.

The new act also introduced a twist: Now existing homeowners can get in on the action, too. Longtime homeowners who buy a replacement home after November 6, 2009, or in early 2010 may qualify for a credit. To qualify, a homeowner must have owned and used the same home as a principal residence for at least five consecutive of the last eight years. The credit is 10% of the purchase price up to a maximum of $6,500. Income limits and other restrictions still apply.

Unlike the 2008 credit, the 2009 and 2010 credit does not automatically have to be repaid. However, if the home ceases to be your principal residence within 36 months from the date of purchase, the full amount of the credit received becomes due. Exceptions apply for special circumstances, such as divorce.

The credit is refundable, which means eligible taxpayers can take the maximum credit even if the taxpayer has little or no federal income tax liability. You know what that means: refund!

To claim the credit, you need to submit a form 1040, along with a federal form 5405. Be sure to keep a copy of your settlement sheet with your tax records. You must attach a copy of your settlement sheet, such as a HUD-1, to your return; if you do not attach a copy of your settlement sheet, the credit may be disallowed. If you can't provide a settlement sheet, you'll need to attach a signed copy of your sales contract.

In an effort to get the word about the new act out to taxpayers, the IRS has made a video, which is available on YouTube. It's also available in Spanish.

Increase your money and finance knowledge from home

Managing your Portfolio

Keeping your portfolio and financial life fit!

View Course »

Understanding Credit Scores

Credit scores matter -- learn how to improve your score.

View Course »

TurboTax Articles

Cities with the Lowest Tax Rates

The total amount of tax you pay reaches far beyond what you owe the federal government. Depending on where you live, most likely you're required to pay additional taxes, including property and sales tax. The disparity between the amount of tax you pay in a low-tax city and that in a high-tax city can be dramatic. Living in any of these 10 cities could save you a bundle, although the exact amount may fluctuate based on your income and lifestyle choices.

Cities with the Highest Tax Rates

Much ado is made in the press about federal tax brackets, but cities can carry a tax bite of their own. Even if you live in a state that has no income tax, your city may levy a variety of taxes that could eat away the entire benefit of living in an income tax-free state, including property taxes, sales taxes and auto taxes. Consider all the costs before you move to one of these cities, and understand that rates may change based on your family's income level.

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as a deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

A Freelancer's Guide to Taxes

Freelancing certainly has its benefits, but it can result in a few complications come tax time. The Internal Revenue Service considers freelancers to be self-employed, so if you earn income as a freelancer you must file your taxes as a business owner. While you can take additional deductions if you are self-employed, you'll also face additional taxes in the form of the self-employment tax. Here are things to consider as a freelancer when filing your taxes.

Tax Deductions for Voluntary Interest Payments on Student Loans

Most taxpayers who pay interest on student loans can take a tax deduction for the expense ? and you can do this regardless of whether you itemize tax deductions on your return. The rules for claiming the deduction are the same whether the interest payments were required or voluntary.

Add a Comment

*0 / 3000 Character Maximum