Coping: How does that new First-Time Home Buyers Tax Credit Work?
Here are several of the questions you sent in last week -- and a long answer. The new tax credit was a very popular subject. And, you can still send in a question. Just use the form to the right.
You mentioned the $7,500 tax credit for first-time home buyers. Does that apply to purchases last year or this year?
On that first-time home buyer tax credit, what form do I take it on? The 1040?
On the tax credit for first-time home buyers, is that a one-time credit when purchasing or is it an annual thing?
This is our first time buying a home in Florida. Would we get that credit? We own a home in North Carolina.
First, let’s be truthful.
The First Time Home Buyer Credit which became law last year is not only for first-time home buyers and it’s not really just a credit.
“Credit is a misnomer,” says Gil Charney, principal tax researcher at the Tax Institute at H&R Block. “Because you do have to pay it back.”
Here’s how it works, according to Charney and information from the IRS:
-The credit is for up to $7,500 or 10 percent of the purchase price.
-You take it on Form 5405.
-It’s a federal income tax credit. So it applies to homes bought anywhere in the nation.
-It is refundable. This means, if you buy a home and take this credit, you may be getting a big refund down the road.
-“First Time” does not mean never. If you have owned a home within three years before your date of purchase, then you don’t qualify. But if it’s been longer than that, you do.
-It applies to purchases between April 9, 2008 and through June 30, 2009.
-If your are building a house, you have to occupy it by June 30 to qualify.
-Vacation homes and rental property do not qualify. It has to be your principal residence.
-It must be repaid.
-The government will be tracking this over the years. To repay the credit, you gradually add one-fifteenth of the credit amount to your tax liability over 15 years, starting two years after you first take the credit... If you took a $7,500 credit in 2008, you would begin adding $500 a year to the amount of tax you owe starting in 2010.
-If you sell the house and move before 15 years have passed, you have to pay back the remainder of the credit on your taxes for the year in which it was no longer your residence.
-If you transfer the home to your spouse as part of a divorce, your spouse has to repay it.
-People with high incomes won’t get this credit. The credit begins to phase out for singles at $75,000 and for married couples filing jointly at $150,000. There is no credit for singles whose adjusted gross income is more than $95,000 and marrieds, above $170,000.
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Harriet Johnson Brackey, the personal finance columnist for the Sun Sentinel, is an award-winning business reporter. Her columns for 2008 were named "The Best in the Business," a national award chosen by her colleagues at the Society of American Business Editors and Writers.
Comments
i dont get the repayment part of the tax credit, do you pay it back in an actual cash amt or its it something u claim on your taxes
Posted by: grace | January 22, 2009 6:23 PM
You add one-fifteenth of the credit amount to the amount of tax you owe that year. You up your own taxes. You either have to pay that extra amount or, if you have a refund coming, it'll be smaller because your tax bill went up.
Posted by: Harriet Johnson Brackey | January 22, 2009 6:26 PM
My wife and i just returned home from having our 2008 taxes prepared. The individual who prepared them for us noticed that we purchased a home and asked if we were interested in the tax credit listed above. Being first time home buyers, we were overwhelmed with thoughts of paying down some debt with the extra $7000.
After further reveiw, our preparer told us she had some bad news. It seems that we would have had to close on the property after april 8th. We closed at 6:00pm on april 8th, 6 hours to soon. We are devasted and feel that our lending institution could have done more to inform us of this opportunity. Is there anything that can be done about this? Is there any kind of an appeal process we can go through.
Any information would be greatly appreciated.
Posted by: Mark | January 30, 2009 7:52 PM
Remember it's not up to the lender to give you legal or accounting advice. If they would've told you that you were qualified, and later on you weren't, then you'll probably take them to court.
Posted by: florida first time home buyer | February 8, 2009 8:52 PM
There is a new tax credit coming available that will not need to be repaid. Some say it will be allowable to use it as an instant credit for closing costs!
Posted by: Florida Mortgage | February 26, 2009 4:49 PM
I doubt it will be used for instant credit on mortgages. They should get it after they file their taxes, and if they're not followed around.
Posted by: Florida Mortgage | February 28, 2009 10:18 AM
Actually several states have been using third party companies to offer a bridge loan for the tax credit to be used as a downpayment.
Posted by: Florida Mortgage | September 19, 2009 9:19 PM
Has anyone heard anything about the credit becoming permanent?
Posted by: Reverse 123 | January 8, 2010 6:46 PM
does first time buyers tax credit apply to mobile homes?
Posted by: r dondero sr | February 10, 2010 6:54 PM