HOME BUYER TAX CREDIT FAQ FOR HOME OWNERS
TANYA KULAGA
REALTOR ®
CRS,
ABR,
GRI
(785)550-2585 FAX:(785)371-1234
UPDATE: December 3, 2010 The NEW IRS 5405 form for all tax years was issued by the IRS.
You must use this version of FORM 5405 to claim the tax credit for home purchases after November 6th, 2009 and all 2009 & 2010 tax returns.
The IRS has also issued 4 pages of INSTRUCTIONS FOR FORM 5405 which you should read if you think you qualify for the credit or are considering purchasing based on your eligibility for receiving the credit.
NOTICE: The filing instructions (Form I5405) have not been revised by the IRS to reflect the new elgibility extension (September 30, 2010). However, the IRS website does have the updated rules and information posted for review.
REVISED: December 3, 2010
You must use this version of FORM 5405 to claim the tax credit for home purchases after November 6th, 2009 and all 2009 & 2010 tax returns.
The IRS has also issued 4 pages of INSTRUCTIONS FOR FORM 5405 which you should read if you think you qualify for the credit or are considering purchasing based on your eligibility for receiving the credit.
NOTICE: The filing instructions (Form I5405) have not been revised by the IRS to reflect the new elgibility extension (September 30, 2010). However, the IRS website does have the updated rules and information posted for review.
REVISED: December 3, 2010
Move-Up/Repeat Home Buyer $6,500 Tax Credit
Frequently Asked Questions (FAQ)
The Worker,
Homeownership, and Business Assistance Act of 2009 has established a tax credit of
up to $6,500 for qualified move-up/repeat home buyers (existing home owners) who
purchase a principal residence after November 6, 2009 and on or before April 30, 2010
(or purchased by September 30, 2010 with a binding sales contract signed by April 30,
2010).
Here are some basic answers to common questions regarding the $6,500 tax credit. I
encourage you to consult a qualified tax advisor or legal professional about your
unique tax situation.
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Who is eligible to claim the $6,500 tax credit?
Qualified move-up or repeat home buyers purchasing any kind of home are eligible to claim this credit.
To qualify, the purchase must close on or after November 6, 2009 and on or before April 30, 2010. However, the law also allows home sales occurring by September 30, 2010 to qualify, provided they are due to a binding sales contract in force on or before April 30, 2010.
NOTE: If you are claimed as a dependent by another taxpayer or you are under age 18 you do not qualify for the tax credit program.
If you are a first-time home buyer, please see the: $8,000 First-Time Home Buyer's Credit FAQ.
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What is the definition of a move-up or repeat home buyer?
The law defines a tax credit qualified move-up home buyer ("long-time resident") as a home owner who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.
If you have not owned a home in the last 3 years, please see the: $8,000 First-Time Home Buyer's Credit FAQ.
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Do I have to buy a home that costs more than the one I'm selling
to qualify?
Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.
Furthermore there is no requirement forcing you to dispose of your original home, but you MUST live in the home you are purchasing and it must qualify as your principal residence.
Here is more info on establishing principal residence status from the CPA Journal website.
As always, review your unique situation with a qualified tax advisor or legal professional.
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How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.
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Are there any income limits for claiming the tax credit?
Yes. The income limit for single taxpayers is $125,000 and $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced above those limits and eliminated for taxpayers with a modified adjusted gross income (MAGI) above $145,000 (single) or $245,000 (married filing a joint return).
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If my modified adjusted gross income (MAGI) is above the limit, do I
qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $6,500 are available for some taxpayers whose MAGI exceeds the phaseout limits. Consult a qualified tax advisor or legal professional about your unique situation.
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How is this home buyer tax credit different from the tax credit that
Congress enacted in July of 2008? How is this different than the rules
established in early 2009?
The previous tax credits applied only to first-time home buyers and were for different amounts of money.
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How do I claim the tax credit? Do I need to complete a form or
application? Are there documentation requirements?
You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).
No other applications are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and repeat home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.
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What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.
It is important to note that you cannot purchase a home from, among other family members, your ancestors (parents, grandparents, etc.), your lineal descendants (children, grandchildren, etc.) or your spouse or your spouse's family members. Please consult with your tax advisor for more information. Also see IRS Form 5405.
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I read that the tax credit is "refundable". What does that
mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.
For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $6,500 home buyer tax credit. As a result, the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000 owed).
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Instead of buying a new home from a home builder, I hired a contractor to
construct a home on a lot that I already own. Do I still qualify for the tax
credit?
Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be after November 6, 2009 and on or before April 30, 2010 (or by September 30, 2010, provided a binding sales contract was in force by April 30, 2010).
In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.
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Is the credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $6,500 in income taxes and who receives an $6,500 tax credit would owe nothing to the IRS.
A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer's tax liability would be reduced by $975 (15 percent of $6,500), or lowered from $6,500 to $5,525.
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If I qualify for the tax credit and buy a home in 2009 (or 2010), can
I apply the tax credit against my 2008 (or 2009) tax return?
Yes. The law allows the taxpayers to choose to treat a qualified home purchase in 2009 as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). If you have already submitted your tax return to the IRS, you may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.
This means that the previous year's income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.
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For a home purchase in 2009 or 2010, can I choose whether to treat the
purchase as occurring in the prior or present year, depending on in which year my
credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.
NOTE: This is particularly important for taxpayers who choose to sell their existing residence and expect to make a profit from the sale. Taxable profits from the sale of your residence will be added to your other earnings and may cause you to exceed the allowable income threshold for the credit. Consult a qualified tax advisor or legal professional about your unique situation.
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I am not a U.S. citizen. Can I claim the tax credit?
Perhaps. Anyone who is not a nonresident alien (as defined by the IRS) and who has owned and resided in a principal residence in the United States for at least five consecutive years of the eight years prior to the purchase date can claim the tax credit if they meet the income limits. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. The IRS provides a definition of "nonresident alien" in IRS Publication 519. Consult a qualified tax advisor or legal professional about your unique situation.
- I own a house in Lawrence, KS and would like to take advantage of the
$6,500 tax credit to buy another home. Where should I start?
You can start by giving me a call to discuss your thoughts at (785)550-2585. I have sold hundreds of Lawrence, Kansas homes and would be honored to provide you with any advice needed to get you started. Now is a great time to get moving, so give me a ring at (785)550-2582 or use my contact form to send me a message.
Read the full text of the home buyer tax credit laws:
