comments
$7500 First Time Homebuyer Tax Credit
Email
 Print
|
Update 2/12: The $15,000 provision has been replaced by an $8,000 first-time home buyer credit, according to the Wall Street Journal.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)
{ 1,250 comments, please add your thoughts now! }
Related Posts
 By Jim |
 Stumble It! Bookmark reddit.comTags: Home, Housing Rescue Bill, Tax Credits, Taxes Aug 19, 2008 | Read more in Government |
Like this article? Get all the latest articles sent to your email for free every day. Enter your email address and click "Subscribe." Your email will only be used for this daily subscription and you can unsubscribe anytime.
i would like to claim this tax free loan on my 2008 return. what would happen if for some reason i dont close on my new home before july 31 2009? do i have to pay the money back on my 2009 return?
you dont qualify for tax credit unless you have proper documentation (closing documents from escrow) proving that you closed escrow and you are the new title holder to the property
They are looking at changing this program for 2009 under the new stimulas plan proposed by obama. They may be extending this date out and making any home buyer purchasing a home for the first time in 2009 not have to pay back the loan amount at all. So you may be better off.
I owned a home before and my boyfriend has not. We purchased a home together last May and we are not married or common law and we are going to file separately. Is he going to be able to file for the tax credit?
erin,
He will be able to claim the credit. Depending on his income, he should be able to claim the full $7500.
yes but at 50% or $3750 and you at $3750
I don’t think she can. She cannot claim it because as she states she DID own a home prior.
Wanted to know, what happens if I get this tax rebate of 7500 and I dont get to find a home within the period specified?
Anthony, you have to close on the home prior to claiming the Tax Credit. I did it and I had to show them proof that I had closed on my home first.
Milly, I plan on getting the 7500 tax credit. I thought to claim the tax credit you just marked it on your tax return. Are you saying that you had to provide something to the IRS to prove that you bought a house?
Again… Dan you have to close on your home before claiming the tax credit. You will not get the credit if you havent closed on a home first.
Do you qualify for this if you have purchased your home on land contract?
Amanda, I’ve had this question out there for some time withou answer. Have you clarified?
yes but only if and only if your house has finished the construction and you can prove that you are living in it prior to jine 30, 2009
I also purchased a house land contract this past summer. Did anyone give you an answer to the tax credit. Our tax preparer said it did not say it included land contract but didnt exclude them either. Do you have any clarification?
Has anyone found out if a land contract purchaser qualifies for the 2008 first time buyer “credit”?
I am a medical student living on student loans. I have no reason to file a tax return, because I have no other income. I bought my first house in July 2008 (my dad co-signed) and would very much like to take advantage of this $7,500 “loan”. Do I qualify? If I do how do proceed. Will I have to send in a tax return for 2008 showing no income to get this credit or is there another way?
Sounds like you can claim it:)
Great! I hope so!!
I purchased my first home in March of 2008. I closed on March 28, 2008-did not begin making payments until April 28, 2008. I was told that I was not eligible for the credit because I closed before April 09, 2008?!!! I think that is ridiculous. I hope that my tax preparer is mistaken and an ammedment can be made.
Any suggestions?
I am in a similar situation. I closed on a house on March 24 2008. Am I eligible for the $7500 credit somehow?
How in the world do they just chose an arbitrary date of 4/8/08? Crazy!!!!
Disconcerted and Monday, neither of you will be eligible for the credit because you closed outside the window, sorry. Although you may not have paid until within the window, you technically purchased that home upon closing, which is outside the valid dates.
if i closed on my house in january 09 can i send in for the rebate on my 08 return?
Yes, it explains that on Form 5405.
http://www.irs.ustreas.gov/pub/irs-pdf/f5405.pdf
My fiance has never owned a home, I do, if he purchases the home in his name can he qualify as a first time buyer if we are married?
Probably not because you already own a home.
Sandra – Check out the IRS website and their newly added IRS Notice 2009-12 (http://www.irs.ustreas.gov/pub/irs-drop/n-09-12.pdf)
It explains how the process works for first-time homebuyers who are not married. You and your fiance are NOT married (yet), so he should qualify for the credit, even if you are joint owner of the house, loan co-signer, etc.
In reading several of the posts above… It seems as though you have to close on the house before you can submit for the credit.
I’ve already received all of my tax information and would like to send it in and get my tax return. But I want to receive this credit for 2008 too!
Can I send in my information for my regular return… And then ammend it once I close on my house for the credit?
Any suggestions would be appreciated.
I have finally given up! I purchased a home by myself when separated from my spouse. My mortgage, my deed, my responsibility. Everything says I could get $7,500 credit. But – I reconciled with spouse after home purchase so now I file married – but due to his owing money to the IRS we file separately. Now I’m only eligible for $3,750. I finally gave up trying to get answers from the IRS regarding my being the sole purhaser and owner and being eligible for the entire $7,500. I filed my taxes for 1/2 the credit and no one gets the other half! Oh well……..doesn’t seem right – but just that much less for me to pay back. Sure would have liked to put that $7,500 back into the economy with home updates……..but not now.
Kit – It sounds like your husband can apply for the other $3750.
Technically – yes he can. Which makes no sense as he purchased nothing, is not responsible for the mortgage or the taxes. But – because HE owes back taxes (which I am not responsible for)they would keep his refund & since the refund would only be the $3750 tax credit for first time home buyers – it would have to be paid back. He has no income other than SSA disability. So the repayment of the $3750 would end up coming out of my income every year which means I end up paying for something I never got because the IRS kept it to pay for his back taxes which I am not responsible for. No thanks – that is why I file seperately in the first place. I know guidelines have to be set on all these credits – I just feel bad cuz I’m the one with a clean history with the IRS and I am the only one that worked and kept my credit good so I could buy a house – yet I end up not being able to take full advantage of this tax credit due to my husband’s poor money habits. Learn from me ladies……….or gents.
My financee and I purchased our home in September of ’08. Do we each get the 7500 credit or is it just 7500 total for the both of us?
My finacee and I purchased our home in Sept ’08. Do we each get the 7500 credit since it’s our first time purchasing a home or do we get the 7500 as a couple?
It is $7,500 as a couple.
See my reply several posts up that linked to IRS Form 5405.
On a side note… The credit is capped at 10% of the purchase price of the home or $7,500; whichever is less.
So… If your house was only $60,000, your credit will only be $6,000 instead of the full $7,500.
Actually, the rules state that you could have adjusted your 2008 withholding to “save up” the credit in anticipation of a purchase, and use that savings towards your down payment. It also says you can claim it on your 2008 return for an 2009 purchase *OR* do an amended return. So it seems to me that you can claim in anticipation of your purchase to occur before the June 30th deadline.
Purchase must occur first. You have until April 15th?? to file your 2008 tax return. If you purchase in 2009 before you file your 2008 return – then you can claim your 2009 purchase on your 2008 return.
My fiance and I purchased a house on contract from the previous owner in September of 2008, we do not have a mortgage through a bank but our Contract for Deed has been filed with the county, because we did purchase our house as first time homeowners, would we be elligible for the credit?
I bought my home April 1, 2008!! My first payment was due in May. There has to be a loop hole in this tax credit allowing us folks that were a week early to get this credit!@ Does anyone out there know anything?? Please help, I just had a daughter last week and I need this credit
Hello, I read some where that there is a bill that will allow this not to be paid back. Has anyone else herd about this? It’s not passed yet but it was going to be volted on. I ight have been mistaken.
I closed at the end of March in 2008. What’s the reason for the April 9th date?
I am in the same situation as many of you, I closed on my home on March 28, 2008. I contacted the IRS directly and they confirmed I was not eligible. The representative I spoke with did indicate many in the his office disagree with the arbitrary choice of dates, after all, a 2008 tax credit should apply to ALL of 2008. The only thing you can do is write your local representative to indicate your displeasure. If the voice is loud enough, maybe the rules will change.
Same here Jason, My wife and I closed on March 28th 2008 as well. I am a little disappointed, but, what are you going to do.
I purchased my home on January 31, 2008. I couldn’t get the credit either. I wrote to my congressman useing the internet. Everyone who is in this situation please do the same.
I know there are alot of people out there who purchased a home in the 1st 3 months of 2008 just like me who didn’t qualify for the 1st time home buyers tax credit. The new tax laws didn’t help me at all. I was also a victim of flooding in a federally declared natural disaster area in June 2008. Now I may see foreclosure in the future. I even put in a new furnace, water heater and 4 new windows in 2008 and I don’t qualify for the energy efficient home tax credit because those items aren’t solar powered.
Can my husband and I qualify for the $7,500 tax credit if we bought our house on March 28th 2008? But we didn’t make our first house payment until July because they gave us some type of break with being a first time home buyer.
My husband and I are first time home buyers. We moved into our home December 17, 2007. Is there a way we can qualify for this taxe credit?
2007???? Home purchase must have taken place between 04/09/08 and 07/01/09.
my boyfriend and i purchased a home together (first time buyers) in november. are we both elgible for the tax credit or do we have to split the 7500?
Do you still qualify if you bought the house from a trust of a deceased family member?
What if someone bought a first home in March 2008 and then re-financed that same house in Jan 2009? Would that qualify?
My husband and I did a promisary note with my gradfathers condo and paid him “rent/mortgage” until we we able to go out and get a loan from a bank. The condo was in our name and we paid taxes on it, but never technically bought it. Once we were ready to move out, we put the condo in my fathers name. No closing costs etc were ever exchanged it was simply a convenient living arrangement. We took it the extra step so that he would not have to pay taxes on it. We since then bought a house in Nov. De we qualify?
My understand is that President Obama may be actually modifying this credit so that it does not have to paid back at all i.e. not even %500/month over next 15 years…This may be a good time to let our congressmen know to also modify it to change the date to include eveyrone who purchased his/her first home in 2008, not just those after 4/8.
So, write to your congressmen/women.
Here’s a link to find your state rep:
http://www.house.state.tx.us/members/welcome.php
Here’s a link to find your state senator:
http://www.senate.state.tx.us/75r/Senate/Members.htm
I’ll try to post a letter later on that you can cut and paste…
I TOTALLY AGREE! THIS PROPOSAL is NOT fair! Why would someone who gets to claim the credit for purchasing in 2009, NOT have to pay it back…when those that took the credit (on their 2008 return, for a purchase in 2008) HAVE to???? If the purpose of this credit is to help first-time buyers….why would they NOT make it retroactive to the 2008 returns?
PLEASE KEEP US POSTED on this very unfair, potential change. And…are you sure it HASN’T passed yet?
Hello –
My wife’s grandmother passed away back in 2003 and left her mortgage free home to her and two other siblings. After the attorney officially put the home in their names, my wife went to a bank to get an “equity loan” to “buy out” the other two. Can she (we) qualify as a first time home buyer? Technically, she never had a first home loan to buy the first home… are there loop holes to fill here??
How much of a loss do you have to sell your home for to get the $7500 tax credit forgiven? I am eligible for it, but may have to sell due to my job. I probably can’t sell for much of a profit.
What is the repaidment process? Will there be a monthly payment due or will the repayment somehow incorporated in your yearly taxes?
is there any grace period? i closed on my home a week before the april 9th deadline. did i barely miss out?
thanks
I bought a first home in July ’08 specifically for the $7500 credit. I have recently heard that because I bought from my parents (at fair market value) the credit does NOT apply to me. There was no mention of this anywhere when I purchsed the home. What is the reasoning behind this condition, and is there any way around it?
Charlie,
I’m in the same boat. I just foudn out as I was entering my taxes yesterday that I can’t qualify because my wife and I bought our house from my parents. I’m searching the internet far and wide to hopefully find some sort of loophole… but I don’t think there is. It would have been nice if the IRS published this exclusion rule on their website that explained the credit, but they didn’t at the time I looked at it.
We bought our dream home in another state in July 2008, and we won’t be moving into it until June 2009 (it is vacant). We consider it our primary residence, although we haven’t moved into it yet, since where we are living now is temporary and we are renters. Do we qualify for the credit?
am i eligible for the credit. i found this on th federal website and was confused. What is the definition of a first-time home buyer?
The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the home-ownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
ok well my husband brought a house in georgia july of 2006 but it was never his princple resident he is in the military and is still a michigan resident he brought this house soley for renting out purposes he never even lived in the house. i did but we were not married then i was his tenant thats how i meant him. We just brought a house in oct.of 2008 and this is his second home but his first princple home because he never lived in the other house and this is my first principle home are we eligible for the 7500 tax credit because according to this paragraph i didnt see a 3 year prior mark for a rental or vaction home all it says is you have had to not own a home as a princple home in the 3 years prior someone help me lol and thanks
Hi Dayna. As long as your husband has proof that he was living elsewhere you should be fine, as i would go ahead and claim the credit.
Definition of a Primary Residence:
“Generally defined as 50% of time and it applies to condos, co-ops, townhouses or detached single family dwellings.”
I am sort of in the same boat. I closed on my new home and got married this year in June 20008 and will be claiming the $7,500 credit. I also sold a condominium I owned in August 2007 (taking a major loss). However, going back 3 years from my closing date (of June 2005) I lived in 3 different apartments (since June 2005 – August 2007) as I was going through a divorce from my first wife, during that time. I lived in the condominium for a brief period of time, but not more than 50% during the 3 year period. The other 50% of the time, the condo was either unoccupied or i was renting to a friend of my ex wife’s family.
I guess my point is, in the small chance your husband is audited, the IRS would probably just as verification regarding the home. If he has sufficient documentation and explanation, then I believe that would suffice.
I would go ahead and claim the credit. After all, this is more of a interest free loan and not free money, so I don’t think the IRS would look as deeply into this as other things.
Hope that helps and let me know of your comments.
Jason
Me and my brother want to buy a duplex, can we both claim the 7500 credit or just half. Even though we will be living on seperate floors of the house.
I am a tax professional. No were on the IRS website does it say if married filing separtes can split the 7500 any way they want. Do you know?
$3,750 is all that an individual can get if married filing seperately. The free e-file tax programs automatically give you half the credit if you are MFS.
I am buying home this year. The closing approximate date is in the end of April 2009, but I already filed my 2008 taxes, could I still get the tax credit? if I could how do I file for the credit, do I have to do an amendment to my taxes?
Any answers will be appreciated.
Thanks
I am in the same boat as Lissette! I have already recieved my tax return but i close on my house Feb 28th 2009 can i get the money this year please help!
Kevin and others in the same situation,
I actually found an article on the money.cnn.com website under “Home buying bonus in the stimulus bill” that states the following:
An earlier version of this story incorrectly stated that the tax credit for a home purchased in 2009 could only be taken off of 2009 taxes. However, homebuyers can choose to take the credit for 2008, according to the IRS. Even if they buy a home after they’ve filed their 2008 taxes, they can file an amended return.
So it sounds like we just have to amend our 2008 returns to qualify.
My husband had a house before we got married. We moved a little over a year ago and I purchased a home and got a loan under my name only. I am a first time homebuyer…but does it exempt me from the credit since my husband owned a home…Even if he’s not on the loan?
Hello,
You still qualify for $7,500. Your husband is exempt because of his previous home ownership. Make sure you closed on your current home after April 9th, 2008 and before July 1st, 2009. File now. Amend to your 2008 tax return.
Aren’t there too many unknowns here to say she qualifies? Were you married when you purchased the house under your name only? I believe it states something like IF YOU, OR YOUR SPOUSE, OWNED A HOME IN THE PAST THREE YEARS………they take the spouse into account even if their name is not on the mortgage or deed as long as you were married at the time of the purchase.
i read that portion, but it seems assumed that both parties purchase house under that rule… idk…. i thought it was a possibility that i would be exempt… i’m seeking advice from an filer.
It was just announced on CNN that part of Obama’s stimulous package includes increasing the first time home buyer tax credit from $7500 to $15000. Just thought i’d put this information out there for everyone.
If we closed on a house on March 28th 2008, would we still qualify for the tax credit?
I purchased a house with my girlfriend in May 2008. I am a first time home buyer she is not. We were married in June 2008 do I still qualify for the full $7500 as I would have if we never married?
Does anyone know if this can apply to land contract, contract for deed or other seller-financed transactions?
Does anyone know how the text credit is paid to you once you file? Check for $7,500? And when you pay the credit back…can you pay back in monthly installments? What payment plans are available?
Brian,
Yes. The credit is given to you on this years Tax Refund, either by check or direct deposit. If you owe any money to the IRS, the $7500 us deducted and you receive the remaining balance. You payback the credit $500 per year on you tax return, beginning 2010 – 2025. The first year is a grace period.
Jason
I am a stay at home wife, so I have no income. My husband and I are on the market to buy our first house however the house will be only under his name. Do they still require both of us to prove no prior home ownership? Do we both have to be on the mortgage to qualify for the tax credit?
I believe he will be eligible. that is if he hasn’t previously owned a home (3 yrs)…. You both don’t have to be on the loan to qualify
Hi,
My husband and I qualify for 7500 tax credit. We did our taxes today and didn’t take the credit.Now we are regreating this. We had or taxes e-filed. Can we still claim the credit some how? We closed on our home July 31, 2008. If we can still claim the credit how do we go about doing this? Thanks
Sonya, I have the same question. I did not know about the tax credit until days after we efiled. We closed end of Sept. and qualify for full credit. I don’t want to pay another fee to claim it. I’m guessing we must file an amended return but what does that involve?
Hi All,
Great info here, does anyone know if I can still itemize by attaching a Schedule A to my 1040 and still claim the credit? I thought I read somewhere that I cannot itemize and still claim the credit.
Thanks,
Ben
Can someone please help me out here with this question?
me and my husband will be buying a house before the deadline, but we want to file our taxes to help us with the downpayment. After buying the house, would we be able to amend our taxes to get the credit, or will we have to wait until 2009 to file?
thanks
Guys the irs answered my question on this one, but feel free to to post your comments.
There is a form called 5405 you can use when filing your tax credit. when you look on the form in Part 1 go down to c. and it specifically saids
“If you are choosing to claim credit on your 2008 return for a main home bought after December 31,2008 and before July 1.2009.
The irs guy told me that there has to be a valid reason for doing an amendment, and buying a house is valid enough. So if you file your taxes, and then buy a house, you can amend your 2008 taxes to get the tax credit. Only draw back is that it has to be mailed in, and it freezes any refund coming to you, if they hadn’t already processed it. after you have mailed in your tax amendment it can take up to 12 weeks. so timing is everything.
Again yes you can amend your 2008 taxes to get your tax credit. feel free to get a second opinion, because I called a tax service and they told me I couldn’t, so that’s why I went straight to the irs.
Does anyone no anything about the Rural Development loan….
I close on the 28th of feb and in mid Jan my lender told me there was no funding but they would put more money in the fund my question is how long will it take to put money in the fund the 28th is coming quick!
My husband and I will close on our new home on Feb. 6th. We have owned a mobile home, but have never owned the land it sat on, have only rented. I’ve heard that a mobile home does not qualify as ‘real’ property and is considered personal property like a car. Will having owned a mobile home prevent us from claiming the first time home buyer credit?
Nancy,
According to Turbo Tax a mobile home does qualify as a primary residence.
“Do I qualify for the first-time homebuyer credit?
Eligibility requirements
– You must purchase your home after April 8, 2008 and before July 1, 2009.
– The home must be your main home, the one that you live in most of the time.
– To qualify as a home, it must include sleeping, cooking, and toilet facilities. A home can be a house, condominium, cooperative, mobile home, house trailer, boat, or similar property.”
I bought a house with a friend of mine (def NOT married) in August 2008. We both live there as a primary residence. For simplicity sake, we decided to put all the “house stuff” on my tax return (real estate tax, mortgage interest, etc.). When it came time to select the $7500 tax credit, I said I owned 100% of the home and got the entire $7500. There is nothing wrong with this, unless of course my friend did the same thing (which he didn’t). Is it ok that I handled all the house stuff myself? He is worried because he had to respond “No” to “Did you buy a house in 2008?” otherwise we’d have been doubling up on deductions and credits. We figured this was the most legit way to do it.
I think it should be fine, since there was no credit being deducted for him. He could have select “Yes” to buying a home in 2008 and put “0%” ownership. Just a thought.