$7500 First Time Homebuyer Tax Credit
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Update 2/12: The $15,000 provision has been replaced by an $8,000 first-time home buyer credit, according to the Wall Street Journal.
Senate Republicans added a provision that would make the credit a $15,000 tax credit for all home-buyers, not just first time home-buyers. It would also be a true credit, not a “credit” you have to pay back over 15 years.
One of the big pieces of the housing rescue bill, passed and signed into law in July, was a $7,500 “tax credit” for first time homebuyers. While experts aren’t sure whether it’s “going to work,” these types of tax credits have been used in the past so they do have some history.
There is one aspect of this bill that is surprising and it has to do with one of the qualification rules. You can own a vacation home or a rental property and still qualify for this tax credit. I don’t know if it’s an oversight because of the strict determination of “primary residence” or if it was an intended rule. I don’t think individuals who own rental property or vacation homes necessarily need assistance on buying a primary residence.
First Time Homebuyer Tax Credit Rules
To qualify, you must satisfy these conditions:
- The home much be purchased as a primary residence.
- You must not have owned a primary residence in the last three years. For couples, both individuals must not have owned a primary residence in the last three years. Vacation homes and rental properties don’t affect this (you aren’t DQ’d if you have a vacation home or rental property).
- Must not be a non-resident alien as defined by the IRS in Publication 519.
- Individuals must have a modified adjusted gross income of less than $75,000 annually and couples MAGI of less than $150,000 to qualify for the full amount.
- The phaseout range begins at $75,000 and ends at $95,000 for individuals, $150,000 and $170,000 respectively for couples.
- The home must be closed between April 9th, 2008 and July 1st, 2009.
- No mention of a credit score or history requirement, but knowing that will help when it comes to getting a mortgage. I recommend checking out myFICO.com, a service of Fair Isaac, the people who invented the FICO credit score.
How the “tax credit” works:
- The tax credit is 10% of the home’s sale price with a maximum of $7500.
- You can claim the credit on taxes filed in 2008 or 2009.
- It’s a credit and not a deduction (difference between tax credit and tax deduction).
- “Tax credit” is a misnomer because it’s really a zero percent loan with some qualifications.
Tax Credit Loan Repayment Terms
The tax credit isn’t really a tax credit, it’s really just a tax free loan with some qualifications. You have to start paying back this loan within two years and you make equal payments over 15 years. When you sell your home, any profits will go first into paying off that loan. If you sell at a loss, the difference will be forgiven… meaning you will not owe any money on the loan (though it should be recorded as income as is typical with most loan forgiveness agreements, so you will owe taxes on it).
Should You Do It?
I would, why wouldn’t you take an interest free loan? 
 By Jim |
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Tags: Housing Rescue Bill, Tax Credits, Taxes, The Home
Aug 19, 2008 | Read more in Government
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I have a question. My sister bought a house with my mom. My mom is on the loan by herself as my sister doesn’t have good credit. My mom isn’t a first time buyer however, my sister is. Can she get the 7500 for 2008 tax yr. they bought it in July 2008. She is on the deed but not as of right now on the loan. She will be soon but I am just unsure b/c if my mom already bought a house before does that cancel out my sisters chances of the 7500 credit. I think her accountant did half or 3750 but I am not sure if she can do half or all or none. Thanks
We bought a home in 2005 and I was not aware of any of the first time home buyer credit. Can I go back and refile the tax to get any credit? Any help is greatly appreciated.
No. The first time homebuyer credit was not available in 2005. Only the various deductions you could have taken on your itemizing that year.
I closed on my house in February of 08. I had to do alot of work on the house and did not move in until mid april. I wasn’t sure if I qualified for the credit or not, so I called two tax advisors, both who said yes, I should take the credit. Which I did. Now I am not so sure they gave me accurate advice. What should I do? I don’t want to end up being arrested for tax fraud. HELP
From what I understand the credit becomes eligible when you move in from a house you have built. But “purchase” is defined as when the title closes for when you are buying already existing property.
Either way I believe the first-time homebuyer’s credit started April 10,2008 – Dec31,2008 for the $7,500 credit loan. Your date of Feb2008 would not qualify.
Go into your local IRS office and they will walk through some questions and give you a printout for your records.
John S. – You got terrible advice, if you closed in February 2008 you are not eligible for the credit. Not sure what the consequences will be one the IRS catches it, but at the least it will be repayment of the $7,500 with interest and most likely a penalty. You may make it onto a list for future audits as well.
I would contact them ASAP, let them know of the error and repay the credit.
My husband and I purchased our home in Decemeber of 2008. After we filed we were told we could of recieved the tax credit. So we amended our taxes and did it through h and r block. The form the lady gave us there is what I sent in. Is that it? Just the tax form? I tried calling but have been placed on hold for like 30 minutes at a time. Help
Could someone answer this question. My wife was gifted her parents house over 5 years ago. Would we still be eligible for the tax credit.
Thanks
It doesn’t matter when you last bought a house, only when you last owned a house. If she still owns it, then she wouldn’t be eligible.
If your wife(&/or you) own a primary home within past 3 years you do not qualify for this credit.
If she was gifted the home and then sold it/regifted, then you would be eligible for another primary residence home bought now.
If her parents house was/is used as rental or vacation, then it does not count towards your ‘primary residence’.
If in doubt go into your local IRS office.
I received the $7500 tax credit but I heard that people receiving the $8000 tax credit do not have to pay it back. Is that true? That doesnt seem fair.
Yes this is true. It’s very unfair, as people who bouth a house even one day before January first, are not eligible for the 8000 dollar handout. Very unfair. They should give that tax credit to all those that fall in the original dates for the 7500 dollar credit too. We also bought our homes when the economy was bad.
Unfortunately policy must have a start date and that generally has to cut off someone. The good news is that they provided something rather than nothing for that year. The new year brought some adjustments. This was only to be a temporary credit so down the road many will not get anything.
I filed for the $7500 tax credit separetly from my taxes (ammended form) in March. Its now May. Is it normal to take so long to receive it? Is there a website where i can check the status of the tax credit?
Thank you
I’m in the same boat, I called tues. of this week, and it’s FINALLY being processed. I sent mine on March 24, 2009.
who did you call to find that out?
It’s not the homebuyer credit that is taking so long but the amended return for anything takes longer to process
i bought my moms house in nov 2008 for the appraisal amount would i qualify for the 7500 tax credit
I closed on new construction on 12/31/08 I did not move in until February as the builder had not finished everything. I claimed the 7500 but now I read I can claim for the date of move in not closing. How do I go about getting the additional $500 and converting it into not having to pay it back as opposed to the 7500 that has to be repaid.
Amend your return for 2008 removing the first-time homebuyer credit. In ‘reason’ section state that this was new construction and that a wrong date was submitted as your move-in date and was in fact February 2009.
You will have to repay the credit already given to you.
Then I believe you can amend your return even further and add all the changes for the Feb2009 info, or you can wait and claim the credit when you file your 2009 return in 2010.
Best advice is to take all your information into the local IRS walkin service and ask for their help. They can submit it for you as well.
Tab, according to Turbo Tax, people who buy houses from their close relatives cannot claim the credit. The link is below, and you will find that information at the very bottom of the page.
http://turbotax.intuit.com/support/kb/tax-content/tax-tips/6360.html
I would very much like someone to give me an answer to my posting. What proof for new construction must I have as my move in date. The CO was issued prior to 12/31/08 but home was not complete they had to add some columns and paint etc so I moved in at end of January. Please help as I am very concerned about this. THanks.
Cathey, did your contractor give you a paper stating your move-in date? Even if they have smaller work to complete after you move in. Something like that that shows they are now finished and you are allowed/able to move in should satisfy an audit you might get.
My wife was gifted a house over 5 years ago by her parents. We are now selling it and must split the proceeds with her siblings. Will my wife have to pay any taxes on the proceeds. If she does she wants to account for this before she splits the proceeds with her siblings.
Thanks!
Stan, since this is listed under ‘First-time Homebuyer’ I will try to reply based on that.
If your wife was gifted a home and you used it as primary residence, she would be disqualified for the current first time credits unless it was sold more than 3 years prior.
If you did not share in that ownership you are still eligible.
If the taxes/proceeds you refer to are from the $7500 loan then yes, she would have to repay that loan in full if that property was sold/regifted. If this is what you refer to I would not think her siblings would find it fair to have that deducted prior to splitting proceeds but that’s another issue altogether.
BTW, if this gifted house was rental property or vacation home then it does not disqualify you from the credit/loan.
If this is not about firt-time homebuyer credit, then, as for taxation on the gift, there is a one time credit allowed up to a certain amount, but otherwise she would be responsible for taxes if she sold this property. Unfortunately her cost basis would be zero since it was a gift and therefore the amount this property sold for would be all profit and therefore taxable.
Again, I suggest taking all the information into the closest IRS office and know for sure based on your complete circumstance.
I bought my first home in August 2008. I could not qualify for the interest free loan credit because our income was too high, but in 2009 I am unemployed and would like to claim the credit now for our house payments. Can I claim the 2008 credit on my 2009 tax return?
My partner and I broke up and he bought a house in 2009. He received the $8000 stimulus. We are thinking of getting back together and having me added to the deed. The financing would remain in his name and unchanged. It would be his only primary residence. By changing the deed to simply add me as part owner, if I did not file for a stimulus refund, would this cause him to have to return the $8000 tax credit?
My husband & I bought a house in May and we alreay did the amended 2008 tax return. Does anyone know about how long it takes for you to get the credit back?
My wife and I purchased a home June 08′. It was her first home purchased but not mine. I owned a home within the last 3 years.
Can my wife qualify for any tax credit?
I’m not 100% sure but I don’t think so, you both have to be first time homebuyers.
You would only qualify if you both were unmarried at the time of the joint purchase on the home in 2008, then became married. If you were both married at the time of purchase, both spouse and yourself have to not owned a home in the past 3 years. In this s Rob or his spouse does not qualify for the credit.
http://www.irs.gov/newsroom/article/0,,id=206294,00.html
Hope this helps.
My wife and I moved to AZ in June 2008. We owned a house in PA that was turned into a rental home in 2008 that is currently unoccupied due to damages. We are trying to buy a primary residence here in Az now. Since the PA property was turned into a rental in June 2008 would we still qualify for the credit?
My wife and I bought our first home in June 2008, found out about a job opportunity in our home town and had to sell the house in February 2009 so we could pursue this career. We lost out pretty bad on the deal, but were fortunate enough to sell it. Now that we are settled in, we want to buy a home again but do not have any money for a down payment. Is the $7500 retroactive – can we file for that money on our 2009 taxes next year. Please let us know!
Sorry for the duplicate. I never saw the other post. : (