The First-Time Homebuyer Credit has evolved considerably since it was first established by The Housing and Economic Act of 2008. The amount of the credit, who qualifies and when it is claimed depends on the date of purchase.
2008 Home Purchases
For “first-time homebuyers” who purchased a principal residence after April 8, 2008 and before January 1, 2009, the credit was the lesser of $7,500.00 ($3,750 for married filing separate) or 10% of the home’s purchase price.
A “first-time homebuyer” is defined as an individual who had no present ownership interest in a principal residence during the 3 year period ending on the purchase date of the principal residence for which the credit is claimed. For married couples, neither spouse may have had a present ownership interest in a principal residence during that 3 year period. If two or more individuals who are not married purchase a principal residence together, the total $7,500.00 credit must be allocated among the purchasers.
The credit was subject to a phase-out for higher income taxpayers.
The credit is actually an interest free loan as it has to be repaid ratably over 15 years beginning in 2010. Special accelerated recapture rules applied if the home was sold before the 15 year repayment period ended.
2009 Home Purchases
Taxpayers who purchased after December 31, 2008 and before July 1, 2009 could elect to treat the purchase as having been made on December 31, 2008. This would allow an eligible 2009 purchaser to claim the credit on an original 2008 return, due April 15, 2009, on an extended 2008 return, due October 15, 2009, or on an amended 2008 return. If a 2009 purchaser claimed the $7,500.00 credit on a 2008 return, consideration should be given to amending that return due to the following tax law change.
The American Recovery and Reinvestment Act of 2009 increased the credit amount to the lesser of $8,000.00 ($4,000.00 for married filing separate) or 10% of the purchase price and eliminated the pay back requirements (provided the home remains the purchaser’s main residence for 3 years following the purchase) thus making it a true credit. While the original legislation required the purchase to be made by December 1, 2009, the Worker, Homeownership and Business Assistance Act of 2009 extended the deadline for purchasers who have a binding purchase contract before May 1, 2010 and who close before July 1, 2010.
The new credit also phases out for higher income taxpayers.
The credit is a one-time refundable credit.
For purchases after 11/6,09, the credit cannot be claimed by a dependent or a purchaser under the age of 18. Also, the credit cannot be claimed if the purchase price of the home is more than $800,000.00 and purchases from a related party do not qualify.
Special rules apply to members of the Armed Forces and others on qualified extended duty outside the United States.
The new law also provides a “long-time resident” credit of up to $6,500.00 for buyers who do not qualify as “first-time homebuyers” but who have owned and used the same home as a principal residence for at least 5 consecutive years during an 8 year period ending on the date of purchase of the new primary residence.
2010 Home Purchases
A qualified purchaser who purchases in 2010 may claim the credit on either a 2009 or 2010 return.