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$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Update 2/12: The $15,000 provision has been replaced by an $8,000 first-time home buyer credit, according to the Wall Street Journal. The credit is set to expire November 30th unless it is extended (which is currently being discussed).
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? 
(Photo: orvaratli)
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@Roseann: I believe you would be disqualified.
@Chad: I’d ask your lawyer.
@Derek: At least it’s a high tax bracket, you wouldn’t want to earn less just to get it, right?
@Heather: It’s given to you but there’s no way to “prove” whether you spent it on a home or not as long as you bought a home.
Does anyone know if this applies to land contract (contract for deed) or other seller-financed deals?
Do you have to be 18 to get the credit or can you be younger?
You have to be 18 to be able to enter into a legal contract so you can’t purchase a home under 18.
I just bought my home and I got help with my downpayment thru first time homebuyers program which I qualified for. Do I still qualify for this credit it I got help thru a private aganecy with my down payment?
@Alyssa: Since you have to claim it on your return, I imagine you have no longer be a dependent on your parents return.
@Jessica: I believe so.
can the tax be used on a contract for deed sale our land lord wants us to buy the house we live in now any one know?
My sister and I are going in on buying a house together, but initially only my name will be on the deed. In a few months, we will add her to the title… So even though initially her name wasnt on the deed at closing, she is putting half the money into it, and will be on the deed before April.
will she qualify for this credit also?
My mom owns her home and co-purchased the home I live in do i qualify?(if one of the co-purchasers has owned before and the couple are not legally married when they purchase a new home does it matter?)
Would this $7500 be taxed as income for the year you receive it?
No, it it not going to be taxed as an income. It’s a TAX CREDIT. It serves as interest-free loan to be repaid over 15 years. You will repay the credit at $500 per year. If you sold the home, then the remaining credit would be due from the profit of the home sale.
Im so happy that I just closed on my house 10-31-08…My realtor told me aboutthis at the table and Im so happy!!!! I will take the money who knows what will happen in the next 15 years, and besides thats just 500 from you tax return, not out your pocket. Thank you Lord!
Trying to find out if a mobile home counts as a previously owned home for the purposes of being qualified to get this tax credit. A mobile home doesn’t allow you to get any type of home equity loans or such that a house would. Also a mobile home is on wheels and is not titled as a deed, it is a title like a car. We didn’t own the land the mobile home was on, it was in a mobile home park. We just closed on our new home in July of this year.
I have the same question as Jerry and Sue, which has not been addressed yet. We live in a crappy mobile home that we own, but we do not own the land it is on. It is financed like a car and treated like a car for tax and legal purposes (i.e., our landlord can kick us out whenever he feels like it). Am I considered a “homeowner” by the IRS? This is very important to me because we plan to buy a house next year, and our eligibility will determine whether we stretch to buy before, or wait until after, the July deadline. Any information?
Sue and Maura, I do not have any definitive info for you, but I really think you qualify. You do not have a deed like you would have on a regular home – you have a title, like a car or a boat or virtually any piece of property. This is worth investigating. Don’t take no for an answer because I really think you have something here…
Someone told me you can’t claim this on your 2008 return, as in, you won’t get the $7500 in January or February of 2009…you have to wait until Dec 2009 to claim. Is that true? I didn’t think so.. just wondering..
You have the option of taking the credit on your 2008 or 2009 tax returns.
Would the $500 payback be an add on on a 1040, to which other deductions could then reduce the payback amount? Or is it somehow a separate entity on taxes to which you would have to pay back the $500 no matter what after 2 years?
Scott
@Scott: The $500 is a credit on your taxes, you don’t pay it back.
Hey Jim, My girl and i just bought are first home in Nov we make under 150,000 together the house cost 350,000 but were not married but together for 10 years. I havent read anything about having to be married?
Can we get a little more clarification on how this is repayed? A tax credit…..??… meaning they would increase the amount of your taxable income? Decrease the amount of your federal income tax withheld? Or just take $500.00 right off the top of your return?? Is it all related to tax returns or would you have an account you could pay monthly on? Seems like the real true nitty gritty details of this “credit” are not so easy to understand.
My wife and I bought a Mobile Home in November of 2005. We sere not eligible for any first time home buyer options because it is considered a vehicle and not a house, so we had to get a “personal” loan. When we did our taxes, we could not claim the mobile because it was considered a vehicle and not a house. When we sold the trailer in April of 2008 the person that bought it had to get a personal loan, again, because it is a vehicle and not a house. We bought a stick house in June 2008, and thought we would qualify for this credti since we owned a “vehicle” and not a house. Now it seems for this tax credit if you lived in a mobile you do not qualify. This is confusing, mobile’s are considered a “house” for some reasons and not for others. Thanks Uncle Sam!
I am planning on closing on my new house in the beginning of 2009, I will be closing on the house before I file my taxes, would I still be able to claim the $7500 on the 2008 tax returns? or am I going to have to wait until 2010 to claim the credit? Thanks to anyone that can help!!!
You actually have the option of taking the credit on your 2008 or 2009 tax returns.
My fiance is buying a house. She’s been divorced for a year from her husband who co-owned a house with her. Is she a first time home buyer now that she’s doing so solo?
P.S. He currently lives in the house and retains full ownership. She is off the old mortgage
I am puzzled, hopefully someone can clarify one of the requirements:
Must not be a non-resident alien as defined by the IRS in Publication 519.
I am a a resident alien so woiuld I qualify? This is specific to NON-resident alien correct?
Also, I agree with taking the interest free loan. I will pay down a credit card and put more than half into a savings account as an emergency fund.. why not?!?
I beleive the paying back process is $500 * 15yrs
Thanks
This tax credit is not a big deal. I would rather and some of the 100,s of billions given to the banks, insurance companies and whoever else.
Please someone answer this question. In 2007 bought my grandmothers manufactured home. I rented the land from a third party landlord. I lived there for a year and a half and I just purchased a home in July. Does the fact that I lived in a mobile home on rented land disqualify me from the credit? Please someone give me an answer. I was counting on the money.
OKay I need help here… my husband and I bought a house in Sept 2005 BUT my brother moved in with us immediatly and we had a lease to him. We moved VERY shortly after he moved in and he has been renting it ever since. We bought a house in July of 2008 as a primary residence. We even refinanced the other house as a rental… do we qualify?
Ok, I contacted the IRS. if you owned in the last three years a trailer, mobile home, or even a cardboard box with a door and had any mail sent to this location even though you rented the land this completely disqualifies you from the 7500 tax credit. What a joke. The IRS is so screwed up and completely does not serve the people the laws were meant to serve!
Ok, Mike, you need to get married 10 years!!!!! Make it legal marry that girl, you are missing out on money lol,lol
IXSHAh…Ummm Call the IRS, No clue!
Dustin!…Ya killing me, a cardboard box lol,lol Too funny!!
Emily… I don’t think you qualify
David!!! Ummm, what year did they get married? and Buy the house, if it was less then three years ago no…
And Larry…
Maybe it’s not a big deal to you but hello!!!!! People need help, Im glad to take it!! You give your away since you don’t need it!!!
~J
interest free or not, it’s still a loan. Why borrow money if you don’t need it, especially from the government. Don’t get involved wth the IRS if you don’t have to, you’ll play h_ll getting out!
Does it matter what kind of loan one takes out? Must it be a FHA/government loan? I am taking out a construction loan and supposedly, we are not eligible to receive this money b/c it’s not an FHA loan…Does that matter???
If I bought a mobilehome 3 years ago in mine and my wifes name and still own it today do we still quilify for the tax credit
I contacted the IRS yesterday and if you owned a mobile home for any part of three years prior to buying a home, you DO NOT qualify for this tax credit. What a bunch of bull. You cannot get a home equity loan on a mobile home because they depreciate in value but the IRS says even though there is a title like a car and not a deed it still disqualifies you for the credit.
question:
Does the tax credit have any affect on future returns as far as taxable income? Does it affect the next years MAGI?
Not according to how it’s been explained, it appears to have no effect.
My boyfriend and I closed on a house in Oct of this year. However, we used the first time homeowner’s loan. I can’t seem to find anywhere if that makes us ineligible. Anyone have any clue?
Which “first time homeowner’s loan”?
I purchased my first house in June of 2008 so I qualify for tax credit, but since then I have got married, my husband’s name is not on my house. When I file my taxes I have to file as married, will
he get half of my tax credit?
Thank You
If you file together, you’d only get one rebate check.
Ria, I have exact same issue. Nobody seems to know for sure even tax professionals. The IRS says yes, we qualify because house was purchased as single person and new spouses name is not on house. One question, did your new husband own a house in the past 3 years in his name?
No he has never purchased a house before.
Unfortunatly he has some defaulted student loans from before I met him, I did not want them to take that from my rebate check, but even filing an injured spouse does not let me explain that the house was purchased by me as a single person.
Ria – I would love to hear if you get any answers. As I posted earler: I have a similar problem and cannot get any answers that make sense. I purchased a home ALONE while separated. Everything about the purchase qualifies for the $7,500 credit. My husband & I got back together and now I need to file married. Cannot file jointly due to his child support and tax issues. If we file separately he should NOT be able to claim the credit as he did not purchase anything! I have the question in to the IRS with no response yet. Someone suggested filing joint and filling out IRS form 8379. Still waiting for answers………
Kit,
I am going to try talk to a financial advisor, hopefully we can get a solution to this problem. If I do get an answer from them or someone else, I will be sure to post it here. I have read the Injured Spouse form 8379, but it does not really give you options to claiming the home ownership or credit only in your name. http://www.irs.gov/pub/irs-pdf/f8379.pdf
If there is a way to specify it on there, I wish someone could explain it to me. If you get any answers please let me know and I will certainly do the same. Good Luck….
Ria – Here is my question to the IRS and then their response. Really not very helpful.
TAXPAYER PURCHASED HOME AND QUALIFIES FOR 1ST TIME HOMEOWNERS CREDIT. HER HUSBAND DID NOT PAY ANYTHING TOWARD THE HOME,HIS NAME NOT ON TITLE OR MORTGAGE, BUT HE DOES QUALIFY FOR THE CREDIT. HUSBAND HAS PRIOR IRS DEBTS. IF TAXPAYER FILES INJURED SPOUSE CLAIM F 8379, CAN SHE CLAIM THE ENTIRE $7,500.00 CREDIT SHE QUALIFIES FOR ON LINE 12? The refund you are entitled to will be based on the way the Form 8379 is completed. The form 8379 will also take into consideration if you were a resident of a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin) at any time during the tax year.
Review the instructions for the form 8379. If after review of the above information and you have further questions, please contact our office at 1-800-829-1040.
does the tax credit apply to a owner finance loan
i did a owner finance in 07 but never have claimed the interest…and i just bought a house threw a lender. do i still qualify?
I was single and a first time home buyer when I closed in July 2008. I married in August. Does anyone know if I still qualify? We will be filing jointly and he did own a house in the last 3 years.
You probably won’t qualify because you would be married for 2008 and your spouse owned a house in the last three years.
Thanks for the reply. I called the IRS…on hold for 30 minutes but anyway, they said I WOULD qualify since only my name is on the house. I hope they know what they are talking about. Not too many people in my situation.
Lara – I’m also trying to get info for my situation. Purchased a home when hubby and I were seperated. In my name only – mortgage and house! Now we’re back together but we file separately. They tell me I can only get 1/2 fo the credit. My purchase qualifies in every way for the full $7,500 – except for filing separately! It stinks!
this blog is worthless. There isnt anyone with answers. Just a bunch of questions. IRS is horrible.
are there any extra credits if you closed on your house is the 4th quarter of 200
i purchased a home for the first time in my life in Septmember 07. do i qualify for the $7500 credit
So many questions and different situations! Here’s mine: I lived with my “significant other”, who bought a home – financed in only his name. However…I insisted on being put on the Deed to the property (my “security blanket” I guess). We split in May of 2008 – I signed my interest in his house over to him. I bought in June of 2008. Do you think I’d get the credit…or will being on the deed (for his house) disqualify me as “having an interest in a home in the last 3 years?” I never got any of the financial benefit (tax deductions, etc.) from his house, so my prior tax returns show nothing deducted. Any comments?
You should be fine since the IRS goes off of what you claimed on your previous taxes. They dont’ do title searches to see if you’ve owned property.
I hope that is true! I was wondering what “third party information” they used. I can sure use the money! Thanks for the reply!
this stinks! My husband owned a home , we are recently married and I have never owned a home. I cannot get the tax credit due to him owning a home not fair!!!!!
i believe i am in the same boat i received a sizable grant through hud of $30,000 for aquisition and rehab would still qualify?
After being on hold for 1/2 hour I got nowhere with the IRS. PHFA provided a first time homebuyers assistance to allow me no down payment. I asked the IRS if the Pennsylvania Housing Finance Agency used tax-exempt mortgage revenue bonds and she told me I would have to ask the lender. I asked if they had a listing of lenders that do uses these bonds and she told me she couldn’t help me. I asked how they know and she laughed at me for wanting to “know our deepest darkest secrets”. When I checked with the bank, PHFA does indeed use these bonds. Moral: Check with your FHA.
me and my wife just bought a house in dec.08.we were going to file seperate because of my child support arrears,but found out we won’t get the full 7,500,how should we go about filing,what are our options
I have a similar problem and cannot get any answers that make sense. I purchased a home ALONE while separated. Everything about the purchase qualifies for the $7,500 credit. My husband & I got back together and now I need to file married. Cannot file jointly due to his child support and tax issues. If we file separately he should NOT be able to claim the credit as he did not purchase anything! I have the question in to the IRS with no response yet. Someone suggested filing joint and filling out IRS form 8379. Still waiting for answers………
i have a question? what if i am in the process of purchasing a home by may 2009. can i still file the first time home buyer tax credit when i file my taxes this year before the home is closed?
What will I need to bring to the table, so to speak, when I fill out my taxes to get the credit?
Will it just be a box I check or will I need some sort of documentation?
Thank you for your time
Chris
If I will be closing on the house in May, can I claim the credit on my 2008 return filed in February, or do I have to close on the house first, then file my taxes?
i am looking for a house now but do not have a solid contract but i am 100% sure i will close by april 1st. can i file my regular 2008 tax return now and then do an ammendmentfor the $7500 after i close on the house in april?
I purchased a home with my boyfriend of 7 years. Both first time home buyers. Do we split $7500? I can’t believe they would give us each the full amount.
I did my taxes and forgot to put in my claim for the $7500. What should I do?
If you can’t get your return back, I imagine you’ll have to file a 1040X Amended Return but I don’t know for certain. Your best bet is to contact a tax accountant or preparer for the most accurate advice.