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Update 2/12: The $15,000 provision has been replaced by an $8,000 first-time home buyer credit, according to the Wall Street Journal.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 am closing on a condo on March 4 2009, when I file for my 2008 taxes would I be able to apply for it and recieve the money with my 2008 tax return?
only if you do your taxes after the closing is done otherwise you have to wait until next year
nope. you will be able to get it when you file next year for 2009 taxes
if you file before you close you can still do an amendment but since you are closing in March I would just wait and then do your taxes after you close, there is also going to be interest and taxes that you can claim
If you are closing in March, you have 3 options. You can file your taxes now to receive any refund you may already be entitled to, then file an amended return to claim the credit later in the year. Second, you could wait until after you close on the condo to file your taxes, and claim the credit at that time. Lastly (and my recommended option) is to wait until you file your 2009 taxes in early 2010 to claim the credit. As of 02/05/09, it looks like the credit is being increased to a max of $15,000 and will not have to be repaid according to the pending stimulus plan. However, there is no indication that these changes will take affect in time for your 2008 taxes.
You are able to claim the credit on your 2008 taxes. According to the IRS you can claim the credit on your 2008 taxes as long as you close on your house before July 1, 2009. However, when doing your taxes you will need to input the address of the property you are buying if trying to claim the credit on your 2008 taxes. I am building a house that is expected to be done May 31, 2009, and I am claiming the credit on this years taxes.
yes
What if i take the loan but don’t end up buying a home?
You can’t claim the credit until AFTER you close on a new house.
Is it possible to take refund for first time house bayer for nov.2007.
I forgot yo apply in last year.
Please reply
they are about to make that a 15000 tax credit
What if I had owned a home with the last three years for three years and just gave it to my parents JAN 2009. I guess that would show up on my history so I would not be eligible but, if my finacee gets the house on her own and qualifies she could get it right? But, what would happen when we get married. Do we need to keep our taxes filed separately for her to continue with the credit or does it not matter even if we combine our incomes. Main question here is does the process only apply to getting the loan and once you have it there is no changes?
if you have the 7500 tax credit and they up it to 15000 can you get the difference?
I have the same question, bought in july 2008. someone please email me if you have answer
me too.
if you got the 7500 for first time and they just up it to 15000 can you get the difference with and amendment to your tax’s? is the 15000 for this year or next?
No- The new legislation has a sunset provision which means that you can only get the $15,000 if you buy a home once the bill is passed. If you bought a home prior to the bill being passed then you would get nothing if you are not a first time home buyer and a $7,500 loan vs. a $15,000 free gift.
is the 7500 a check i cash or am i wrong
now when you say 15000… Even if you paid nowhere near that in taxes… There gonna give that to you??
you can do an amendment to your tax return after you close
What if i qualified for 7500 tax credit and already filed? Will i get it repayment free or get addition of the 15000 credit automatically? or will i have to amend my taxes to get additional money?
Check out the potential big changes to this credit…increased amount, no repayment/recapture and a 5% down payment requirement
Original Rules:
http://www.irs.gov/newsroom/article/0,,id=187935,00.html
Proposed Amendment introduced today into the economic stimulus package:
http://thomas.loc.gov/cgi-bin/query/F?r111:1:./temp/~r111Ar22sE:e267980:
i’d really like to read this, but the link is dead?
I just purchased a house on feb 4, 2009. Who do i contact to see if im eligible for this $7500 first time homebuyer tax credit? Is there a number I can call or someone I can talk to?
Thanks
if you use HRBlock online tax forms, you’ll see the 7500 tax credit available. If you have already filed, you can file an amendment to get the credit.
hopefully this helps everyone… seems like you may have to buy “the home” this coming year – 2009… read for yourselves… the link is directly from senates website… http://www.ajc.com/metro/content/metro/stories/2009/02/05/isakson_stimulus_homebuyer.html
I bought my house April 15,2008. It is my first home. What date is the new starting date or cut off for the new 15,000 credit?
I don’t think they’ve gotten that far yet……..but I’m betting it will only be for purchases made in 2009……..I too purhased in 2008.
What about us who bought in the first quarter of 08? I bought in Jan. So no credit at all?
It works like Comcastic or AT&T.. If you are old customer.. You get no benefit. that’s the Change we were looking in the America.. Go Dems or Reps..
I just had my taxes done on Monday and I ended up taking this $7500 credit. I don’t plan on selling my house and I could really use the money to make home improvements, so I figured that it would be totally worth it. I plan on putting most of it in a separate bank account so that I can keep track of it.
If you buy a house in the first half of 2009, you can amend your 2008 tax return to get the loan? Doesn’t make sense to me that you can amend 2008 for a 2009 purchase.
I agree. This new tax provision is garbage and screws those of us that bought a home prior to when this bill will be passed.
Confused is it a credit or loan. Who knows more about this accountants?
It is an intrest free loan. You pay it back in payments of $500 every year when you file your taxes. So, lets say you file in 2010 and get a refund of 2000, well you’ll get 1500 and IRS gets 500. In 2011 you file and are only getting back 300. They get the 300 and you owe 200 by the April 15 deadline. HTH
if we buy the house in 2008 how about if we refinance it in 2009 is that count?
The tax credit is only for 1st time home buyers, which is defined as anyone who has NOT owned a home in the last 3 years.
I wanted to know if onece you get the 7500, do you have to repay it when the new 15000 takes effect? and do you get the remainder of the 15000?
trying to understand.. if i bought a home in 08/2007 i do not qualify for tax credit?
yes you would qualify. my coworker claimed the credit on her home she purchased in 2006 and sure enough today she got that 7500 with her refund.
No, you don’t qualify for a home bought in 2007 or 2006. Your coworker cheated on her taxes when she claimed that home purchase.
Email your senators and tell them to make it retroactive to Jan 2008. This would be huge for the economy.
So we filed our taxes yesterday and we are indeed getting an extra check for $7500. Plus they said if the law changes to $15000, we can ammend our taxes and get another check for $7500. How cool is that? Paying off all debt this year except for our brand new house is awesome! No worries!! It’s good to be an american!
Question I filed Monday and we are getting the 7500. We closed on 10-31-08, so would we qualify for the 15000? Where did you get your taxes done? we use h&r When did you close? Is the 15000 just for home closing in 2009?
good job, Natalie. I’m happy to hear a success story for a change. Best of luck with the new house.
Natalie, when did you close?
Would you mind posting who gave you the information about amending and getting another check? I have been wondering the same thing, as I am about to file my taxes.
Thanks,
total crap, i bought a house in November of 2008, so i get shafted
I do not think you’ll get shafted, you’ll still get the $7,500 per the the original bill, it is still up in the air as to if those of use who bought after April 8, 2008 will have to repay the $7,500 or not
Only if you are a first time home buyer. If you had owned a home in the prior 3 years you get nothing, zero,zilch. You get nothing more than a kick in the a$$ and a slap in the face.
stupid, nice that all of us who bought homes prior to this year get nothing. Time to quit paying taxes, and join the democrats
if your not a first time homebuyer you get nothing if you purchased last year correct?
yes – you get NOTHING. This new bill is crap.
well all i have a coworker that bought a home in 2006 and she claimed the credit for it and she knew she didnt qualify and they sent her the direct deposit today. im thinking about claiming this credit(do not own a home) to pay some debt off, then buy a home. can i do that? or do i have to already own the home?
Your coworker cheated on her taxes. No different than lying about your income. If you claim the credit without buying a home, you’re doing the same.
what would be the repercussion of that? they didnt ask questions at the tax company they took her word they didnt verify
your coworker might get a letter from the Uncle SAM on verifying the transaction in the near future..
Your coworker is most likely going get a visit from the Feds. This is a outright criminal act and she should face full penalty. It is your duty as a american to turn her in to the IRS. If you dont want to I can.
How do i contact the congressman to try and change it so the people who are first time home buyers and purchased their house in the first quarter of 2008 can get the credit as well…???
Cheat on your taxes and face the penalty. We all want and need money right now, but to make a false claim on your federal taxes??? You need locked up. I just closed on my home and I am waiting to do my taxes, if the $15k dosnt go through then still I have the $7500. No need to get greedy these days. I work 2 jobs and put in 80-90 hours a week for the last 6 years to clean my act up and credit, its a slap in the face to hear people claiming credits that dont belong to them.
If they owned a home in the past three years, they would have itemized the interest and taxes. Don’t you think the IRS would notice people claiming the credit who obviously dont qualify?
If I bought a house in May 2008 but have not claimed the $7500 credit yet, will I still be able to get this if the new bill gets passed? It sounds like I will miss out on both the $7500 and $15000 credits. Is this correct? Should I hurry and file my 2008 taxes so I get the $7500 credit?
You wont miss out since you have until the deadline as outlined for the $7500 credit, even if the bill changes you will have this. It may be prudent to wait and see if you 2008 purchasers get any of the new deal that way you dont have to amend your taxes, this is all asuming the deal will go through and they include 2008 purchases…….. Go to the library of congress and look for senator Johnny Isakson’s bill for the homebuyer tax credit. There is alot of info there as it also talks about other requirements such as a 5% minumum down to qualify.
How about everyone wait and see, and for those people cheating on their taxes I hope you get prison time.
I’ve had two acquaintances get into trouble with the IRS. These people didn’t intentionally cheat on their taxes – they were just mistaken. Both spent tens of thousands of dollars in attorneys’ fees as a result (not to mention penalties, interest, etc). The poster’s “co-worker” is committing tax fraud which can be punishable with prison time as well as monetary issues, frozen assets, liens, credit ruined, etc. The IRS will, eventually, find out (trust me) any their reach is never-ending (trust me again). It’s not worth it for a measely 7500 LOAN – that she has to pay back anyway. Once you’re in trouble with the IRS, your returns always will be red flagged (trust me). The IRS is, almost, all-powerful. It’s not worth cheating them and all of your fellow citizens.
Let me just say that You don’t want to mess with IRS. I forgot to attach my Captial Gain/Loss transaction form and after 2 years I got a letter from IRS to contact them within 1 months or pay them $27,000 in tax. I had to make multiple trip to local IRS office to show the actual transaction before we came to conclusion that IRS owes me $28.43. LOL.. I said don’t worry as long as I don’t have to pay $27,000.
So BEWARE Before you even think of fraud…
I settled on a home on 02/09/2008 as an investment property, this is the first propery I have ever bought. I am also about to buy more own property for my residence within the next 60 days. What do I qualify for? I am also filing my taxes on 02/09/2009. Can you please advise on what I eligible for?
I wanted to answer to Cathy:
you can claim the credit before you buy a home as long as you purchase a home before the deadline in summer 2009. In fact you can choose in which year you claim the credit (2008 or 2009) depending on which year you’ll get the larger credit if your income is over $75,000 and you’re subject to phase outs. That is all on the IRS website. If you are claiming the credit on 2009 taxes because you foresee that your income will be lower this year, which would qualify you for the full credit, for example (assuming you do buy a home before the deadline), you can change your witholding taxes to collect the credit now and not wait until 2010 when you file 2009 taxes. But again, you can only do that as long as you buy a house by the deadline.
As for the tax preparer not asking for proof of eligibility, there is no requirement for CPA’s to question statements made by the tax payer without cause. All the blame for your coworker’s fraud will be laid on him/her.
actually she put her home up for sale in dec 08 and is claiming the credit for a 2006 purchase. i dont know and right now i dont care
The $7500 was an interest free loan. You are sent a check for the full amount minus whatever taxes you might owe. The $15000 is a tax credit. You don’t get a check. Understand? No check. It is simply a tax cut for anyone making more than approximately $92,000 a year. If you make enough money in the next two years (2009, 2010), to owe $15,000 in taxes (and good for you if you did), and you’re buying a home then you get a tax credit, meaning that that $15,000 will be subtracted from your taxes. If you don’t owe that much in taxes, then you don’t get to keep the difference. An easy way to look at it is this; what will you pay in taxes next year? less than $7500? Then you get to keep that amount. More than $7500? Then you get to subtract up to $15,000 from the taxes you owe. It’s pretty easy to see who this new change will benefit.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a30KUnGy1VEM&refer=home
I don’t believe you can claim the credit on your taxes BEFORE you buy a home. Once you buy you can “backdate” the purchase to 2008 if you wish but I read the statute as requiring that you have purchased a home BEFORE you claim the credit. I think the language is fairly straight-forward. Sorry – no credit before purchasing a home.
My husband and I bought a home in September 2008 and thought that we qualified for the $7500 tax credit, but were just told that it doesn’t apply if you bought the home from a close relative. We bought the house from my husband’s father, but not directly – we financed it just like if we were buying any other house.
Why is this a rule? And is there any way to waive it?
When completing the Qualification test for the First Time Homebuyers Tax Credit on Turbo Tax (web version), I answered all questions truthfully and was asked “Had my spouse or myself had a prior ownership in a main home in the last 3 years”. I answered No, due to the definition of a “main home” by the IRS on Form 5405.
Main home. Your main home is the one you live in most of the time. It can be a house, houseboat, housetrailer, cooperative apartment, condominium, or other type of
residence.
I purchased my current home in Texas in June 2008 with my current spouse. Upon purchasing my current home we were unmarried, however were married in August 2008, and filed jointly for 2008 tax year. I sold the condominium (purchased in February 2004) on August 28, 2007. HOWEVER, going back 3 years from my closing date on my current home (June 2005) I lived in 4 separate addresses (excluding the Condo). The reason for this, is when I initially purchased my Condo in 2004 I was married. I became separated from my ex wife in June 2005, and wasn’t emotionally comfortable living at my Condominium. My ex-wife and I both moved out of the Condo in July 2005 and I continued paying the mortgage on my Condo during the time it was unoccupied. I moved back into the Condo in September 2006, (due to financial troubles) in which I only lived there for a limited amount of time., prior to me attempting to sell my condominium.
From the 3 year rule (within the First Time Home Buyers Credit) from June 2005 until August 2007 (date of sell of the condominium)
I lived in the Condo only 7 out of 26 total months, which is roughly only 27% of the time. I did get tax deductions for interest and property taxes from 2004 – 2007, while owning the Condo, but technically for the majority it was not my primary residence or main home my no means during the past 3 years.
I claimed the credit on my Taxes, as I truly felt like I qualified. 2 out of the last 3 years I had a different address on my tax return than the condominium.
Could anyone give any insight to this?
Jason – this is a tough one. I don’t know how the IRS will interpret your circumstances. I guess you could just wait and hope not to get audited.
Thanks Cindy. That’s what I plan on doing. I did enroll in Turbo Tax Audit Defense just in case. The Turbo Tax Audit Meter also had me as low risk for an Audit. Since this is a credit that has to be paid back, if I did get audited, I could plea to the IRS my scenario and hope they just agree to let me repay the $7,500 at the normal $500 year, beginning in 2010. I am just hoping they do not audit based on property tax and interest deductions from prior return years. My last year mailing address on my tax return came from a different address as well as 2006, so hopefully this will help. I truly believe i qualify for the credit and hopefully they let me pay the credit out right instead of auditing.
I am trying to completely understand this. I would like to buy a home but don’t have a down payment but I can borrow it from a family member if I can get the money back. My question is if I purchase a home March of 2009 but file my taxes in 2010, will I get a refund check of 7500.00? I never owe on my taxes and I am trying to understand whether I actually get the money in my hand or just the IRS have it incase I owe on my taxes and it will pay up to 7500.00 if I owe. I am realy hoping that I can get the 7500.00 in a check so I can borrow for my down payment and then pay it back when I receive my refund. I need to clarify to make sure that I will be able to pay my family back.
Thanks.
If I were you I would wait for Congress to pass the $15,000 tax credit (should happen soon), therefore you would get bigger chunk. The only problem with that would be you would have to repay your family next year.
I live in Houston Texas, which was a declared a presidential disaster area in 2008 from Hurricane IKE. Correct me if I am wrong but according to this article, it appears the the Housing Act of 2008 that George Bush signed off there is an exception if you purchased a home in the year of a federally declared “disaster area”
“In general, the Act temporarily waives the First-Time Homebuyer Requirement for residences located in Presidentially declared disaster areas. In addition, residences located in such areas are temporarily treated as targeted area residences for purposes of the income and purchase price limitations. The provision applies to obligations issued after May 1, 2008 and before January 1, 2010 and is effective on the Enactment Date.”
URL – http://www.chapman.com/media/news/media.618.pdf
Also, see the site below
“Comment. Generally, a first-time homebuyer for a state or local HFA program is an individual who has not had an ownership interest in a principal residence for the past three years. However, individuals who purchase homes in “targeted areas” may be treated as first-time homebuyers even if they have had an ownership interest in a principal residence in the past three years. Additionally, the new law waives the first-time homebuyer requirement for residences in Presidentially-declared disaster areas and treats these disaster areas as “targeted areas.”
http://tax.cchgroup.com/legislation/2008-Housing-Assistance-Act.pdf
I dont consider myself a know it all, but it appears that the owning a home in the past 3 years may be waived, since I purchased in June 2008, which as of May 10, 2008 any home purchased in a Presidentially Disaster Area, would have the FTHB qualifications waived. As long as a home was purchased in that area.
Thoughts???
I hope someone can help. I’ve heard so many different things! I purchased a home with my ex-boyfriend in 2003. I refinanced & he came off the loan Apil 2005. I sold the condo in July 2007. I rented for a year and bought my first place on my own June 2008. Will I qualify for the $7500 credit?!? What if we do claim it and its wrong? Does anyone know what kind-of penelity this will be? Is the tax in addition to your 2008 return, or seperate?
You don’t qualify for the original $7500 tax credit, because you owned a primary residence in the last three years. In order to claim it and be wrong, you would have to lie on this tax form:
http://www.irs.gov/pub/irs-pdf/f5405.pdf
See the “Who can claim this credit” section.
If you lie on your taxes, you can go to prison. Don’t do it.
HRW8,
Katie is correct regarding the qualifications. If you closed on your new home in June 2008, then your Condo was your primary residence (June 2005 – July 2007) roughly 2 out of the last 3 years. If you lived in hte Condo less than 50% in the past 3 years you it may be debatable, but not in your scenario.
However, I don’t believe you would go to prison/jail for not qualifying for the credit. The IRS would simply ask proof via mail. If you didnt have it, then they would ask for the $7,500 back, plus interest. They could also see your mailing address and mortgage interest on your last 3 years tax returns. I also believe the IRS will not be auditing each and every First Time Home Buyers Claim, since the credit is going to be paid back anyways in a 15 year span. If the IRS audits 1-2% of returns each year, Lets say they audit 1.5 million out of 150 million, and in addition 2 additional million people claim the first time hombuyers credit, there is no way the IRS has the man power to audit an additional 1-2% of returns. My belief that if you did purchase a home in 2008 in the qualified time slot, but do not qualify because of other reasons then that is a flag for auditing. On the other hand, if someone did not purchase a home at all in 2008 and claims the credit, then that is a huge big red flag for auditing and would be considered fraud.
Prison time is typically for those not reporting income and delibertly without debate are commiting fraud, such as lying about income or claiming they purchased a business or home, but did not. Not for those who aren’t sure if they qualify for a credit.
Also, do you happen to live in a federally declared disaster area in 2008? Such as Texas, Louisiana, or in the Mid West? I am trying to get more info, but it appears the 3 years ownership qualification may be waived. The primary reasoning for this is to stimulate the economy in that disaster area.
Hope this helps….
Yes I have a quick question for anyone who knows or can help me…my husband and I are planning on purchasing our first home very soon. We have found a house we like, and can afford. We are both young, starting out, newlywed, but with stable jobs and no kids or debt at all. I believe we would qualify for the first time home buyers credit of $7500 that I understand would be repaid over 15 years (beginning two years after receipt) Should we wait to purchase the house to see if the government passes the increased tax credit of up to $15000??? Or should we go ahead and file 2008 tax return, and then just amend ? Any help is appreciated. Thanks and have a good day!
You have to actully purchase the home before you claim it on your taxes. And I would wait till the 15000 tax increase passes. That money is free compaired to the credit in place that needs to be paid back.
Can anyone tell my why if I purchase my home from a parent I can not use this First Time Homebuyer Tax Credit. I paid fair market value for the home. My parent purchase a condo.
Would it not be better to have new home sales.
Help me understand why I can not use this program.
They assume you got the home for a deal.
I’m not understanding the forum – if you go to CNNmoney.com and read about the new proposed $15000 tax credit – it indicates that it is non-refundable. That means that if you don’t owe $15000 in taxes you will not get a refund – which sucks. I’m building a house based on the premise that I would have gotten the $7500 back to repay the money I had to borrow as a down payment. If this new bill passes will the old one go away – the $7500 tax credit? Di I have a choice of which one I take? This new bill for $15000 makes no sense and will not help me in any way if it is not refundable – I don’t have to pay taxes so what is the benefit for me – what it has done is completely messed me up. It looks like we are getting screwed. I would like for nothing better than to be wrong – so can someone help me out here? Thanks
If you can afford a home without a job (you dont pay taxes) you dont need the help. Ask daddy for the money.
If you can afford a home and dont have a job (you dont pay taxes) you dont need the help from the government. Ask daddy for the money.