The tax credit for first-time homebuyers, as expanded and updated by The Worker, Homeownership, and Business Assistance Act of 2009, will expire soon. To qualify for the credit, taxpayers have until April 30, 2010 to purchase a new home or enter into a binding contact. Taxpayers must settle on the purchase of their new home by June 30, 2010. Members of the Armed Forces and certain federal employees serving outside the United States have an extra year (April 30, 2011 and June 30, 2011) to buy a home in the US and still claim the credit.
As a reminder, the credit for first-time home buyers is equal to 10% of the purchase price of the new home, up to $8,000 ($4,000 for married filing separate). This is a refundable credit, which means that even if you owe little or no tax, you will get money back.
Long-time residents (defined as people who owned their homes for five consecutive years out of the previous eight) may also claim a reduced credit for homes purchased after November 6, 2009. This reduced credit for long-time residents is equal to 10% of the purchase price of the new home, up to a maximum of $6,500. Again, this is a refundable credit and the same deadlines for purchase and closing apply.
Keep in mind that both credit amounts get phased-out for high-income taxpayers. Also, the credit is not available to dependents or taxpayers under 18 years old or for homes with purchase prices in excess of $800,000.
Taxpayers who buy homes in 2010 have the option of claiming the credit on either their 2009 or 2010 tax return. The credit is claimed on Form 5405. Taxpayers who claim the credit on their 2009 return will not be able to file electronically and must file a paper return with attachments. For more information on what documentation is needed to claim the credit, please refer to the January 25, 2010 Insight article authored by Matthew McKinnon.
Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA, and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.