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homebuyer tax credit
Question: My husband and I just bought our first home in South Minneapolis this past fall. Since then, I have heard a lot of talk about the IRS Federal Tax Rebate for first time home buyers that is being offered this year. I know that we qualify for the full amount of the rebate ($7500) but I am concerned about the provision to pay it all back in the remaining lump sum in the event we sell in the future. Is there a way to take less than the full amount or is this interest free government loan just too good not to pass up in its entirety? Christine, Minneapolis, MN
Answer: Thanks for the question. I hadn't looked very closely at the $7500 tax credit for first-time homebuyers. You've forced me to look at it more closely and, as far as I can see, it's a better deal than I thought.
Like all tax law today, there are quite a few wrinkles. (The IRS has a lot of good information here.) Here are the highlights:
*It's really an interest free 15-year loan. You claim the credit on your federal income tax form. The tax credit is equal to 10% of the qualified home purchase price, and tops out at $7500.
*You don't have to start repaying the loan for the first two years of homeownership. After that, you send the government $500 a year. If you sell the house before you have repaid the loan you pay it from the gains. No gain? The loan is forgiven.
*To qualify you have to buy on or after April 9, 2008 and before July 1, 2009. (Keep those dates in mind!). The purchase date is defined as the closing day. A first-time homebuyer is defined as someone who hasn't owned a home for 3 years preceding the closing.
*The income limits on adjusted gross income is $75,000 and less for single filers and $150,000 for married joint filers. For income above that a partial credit is available. Anyone with an adjusted gross income of more then $95,000 for single filers and $170,000 for married filers doesn't qualify.
The standard rule of taxes applies here: If taking the credit improves your finances then take advantage of Uncle Sam's offer. And for most people I think the credit will be a good deal.
Additional thoughts, anyone?
Here is an update. It's from a look at President Barack Obama's economic recovery plan as it was reported out of the House Ways and Means Committee. The analysis is by CCH, a Wolters Kluwer business.
New Rules for First-time Homebuyer Credit
The proposed legislation modifies the first-time homebuyer credit that was signed into law last year, removing a requirement that the $7,500 credit be repaid over 15 years, but the waiver applies only to houses purchased in 2009 and before the expiration of the credit on July 1. On the other hand, those who take the credit will have to repay the entire amount if they sell their homes within three years of purchase.
Under current law, those who purchased homes between April 9 and December 31, 2008, can claim the credit on their 2008 return, but must repay it over 15 years, beginning with their tax return two years after purchase. If they sell the home, they must repay the entire credit, but only up to the amount of their gain on the sale.
"Frankly, the distinction between 2008 and 2009 purchases is puzzling," Luscombe said. "It seems strange for the people who bought a home in December 2008 to be treated so differently from those who do so in January, 2009, so I wouldn't be surprised if somewhere along the line someone will take a second look at this."
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Comments (24)
January 23, 2009 7:34 AM PT
Under new Stimulus this will not have to be paid back.
January 23, 2009 7:41 AM PT
That's definitely one option on the table. But I wouldn't bank on anything yet. There's still a lot of negotiating going on, so it's unclear what will be the final decision. For instance, this is a recent CNN/Money report:
"The NAHB has been pushing for all home buyers to get a temporary tax credit for buying a primary residence worth up to 10% of the purchase price. A tax credit is a dollar-for-dollar reduction of one's tax liability.
Currently, only first-time buyers may get a temporary tax credit worth up to $7,500 for a limited period of time. But that credit functions more as an interest-free loan from Uncle Sam because the home buyer has to repay it over time.
Neither Dodd nor Senate Finance member Charles Schumer, D-N.Y., speaking to the press on Thursday, endorsed the idea of an actual tax credit. Dodd said a tax credit would not help prevent foreclosures but could spur economic growth.
And Schumer said there was "broad support" among members of the Senate Finance Committee to make tax policy changes to support housing, particularly existing homes as opposed to newly constructed ones."
January 23, 2009 9:11 AM PT
Is this tax credit refundable? That is, can you get cash back from the feds if the credit is more that the taxes you owe?
If it isin't refundable, can you carry the credit over to future tax years?
January 23, 2009 4:19 PM PT
You say "for most people this credit will be a good deal". Can you explain when it would NOT be a good deal? For example, if your tax liability is less than $7500?
February 1, 2009 7:35 PM PT
I just closed on our house Friday. I am getting my taxes done on this coming Friday, should I just claim the tax credit because nothing will change with the way to claim it?
February 2, 2009 3:16 PM PT
I'd claim the credit and take the money. I doubt if anything will change as far as claiming it, but you can always file an amended return. My guess is if there is a change you just won't have to pay the money back. It might turn into a pure tax credit rather than a zero interest loan. Either way, it still pays to claim it now.
February 4, 2009 8:32 AM PT
what about this proposed 15,000 creidt...will it be avaliable to 2008 purchasers or just 2009 purchases?
February 4, 2009 8:40 AM PT
As of right now, to qualify you have to buy on or after April 9, 2008 and before July 1, 2009.
February 4, 2009 6:37 PM PT
Would it matter if you already claimed the 7500 version? Or will I be entitled to the difference on my 2009 tax return?
Pargolo: responding to Chris Farrell | RespondFebruary 4, 2009 9:06 PM PT
Are there income limits on the new 15000 tax credit?
Will: responding to Chris Farrell | RespondFebruary 4, 2009 10:05 PM PT
Chris-
I am nervous about not getting my $7500 credit with the new ammendment. The more I read it sounds like if this is signed that that credit will be wiped out and those of us that bought in 2008 will be left in the cold. Question, if this is the case do I need to file my taxes ASAP to claim the $7500 before this bill is signed? They keep using the word "sunset" in saying that the new ammendment will "sunset" the former $7500 credit. HELP!!???? I am really really counting on that money.
Richard: responding to Chris Farrell | RespondFebruary 5, 2009 7:51 AM PT
I read the proposed amendment and from what I saw, they are keeping the $7500 for homes purchased in 2008, but "sunsetting" the ones in 2009. The 2008 bill says any home purchased april 08 through July 1st 09. The proposed amendment would remove those dates and insert a new $15000 tax credit for homes purchased between January 1st 09 through 1 year after the date the stimulus is signed. This does not eliminate the ability to use the $7500 credit, but it does beg the question of fairness. Say someone closed on December 31st, 2008. They get a $7500 interest free loan. But close on January 1st, 2009 and you have a $15000 tax credit that doesn't have to be paid back! (Assuming you live there for 2 years)
As a first time homebuyer in June 2008, I will watch with great interest to see if they amend that to take over the previous "$7500" bill or if they leave us hanging. Either way I'm not dissatisfied, but it is disheartening to know that if I had waited 6 months I could have saved $15,000.
February 5, 2009 7:54 AM PT
I agree with your reading of the bill. Thanks. There's no final word yet since it's still up for negotiation.
February 4, 2009 7:36 PM PT
The proposed raising of the limit has been ok'd by the senate as of tonight. The AP titles it as a "tax break" and then in the body of the article as a "credit". Has it taken the form of what you refer to as a "pure tax credit," or is it still a loan?
I bought in may of last year and am happy about either option, though the pure tax credit would be the way. As an aside, I'm not very comfortable w/ our country's reliance on lending, so I'm somewhat irked by the expansion of the practice...
Bye.
February 4, 2009 9:36 PM PT
I am about to close on a house i just bought for $127000, but I already did my taxes and did not claim the tax credit that came in effect today Wednesday 5. What can i do to claim that money this year?
February 5, 2009 7:54 AM PT
The bill has an portion that states you can claim it on this years taxes by assuming you bought the house on December 31, 2008. Which still confuses me in terms of why someone who ACTUALLY bought on that date can't get the 15k. I digress, however, I am fairly certain this amendment allows you to claim a house bought before tax due day on last years returns.
February 4, 2009 9:37 PM PT
How about people who purchased their home before 2008? We are the ones struggling to pay the bills.
February 5, 2009 5:13 AM PT
I closed on my house on July 3, 2008 and I just filed my taxes last week. I did not pay a mortgage payment until September. Needless to say, I did not claim my house at all, I did not know anything about a tax credit. Is there anything I can do or is it too late?
February 5, 2009 11:40 AM PT
Yes there is, go back to the place where you filed you income tax return and inform them that you need to file a 1040X which is an corrected tax return. When you re-file, make sure to fill out form 5405 i believe which is the first time home buyer credit form and re-file.
February 5, 2009 9:55 AM PT
I got the credit. Is there a way to check on the status? They said 6 to 8 weeks.
February 5, 2009 10:06 AM PT
Hi-
I bought my house on Jan 2, 2008. But did not make a Mortgage payment until March 1, 2008. This "$7,500 LOAN" only applies to people who bought after April 8, 2008. WHY??? I am still a first time home buyer and bought my home in 2008. What does it matter that i bought mine in the first quarter of the year instead of the 2nd quarter to the end of the year.
February 5, 2009 1:54 PM PT
I have a coworker who is looking into buying a home. For this example, lets say her total taxes equal $10,000. With this $15,000 tax credit, will she get the $10,000 refunded back, plus her original refund? Without the original refund? Will the credit actually push past the total amount paid, crediting her with $15,000 plus her original refund? $15,000 without the refund? The price of the home she buys could hinge on the amount of cash that may be coming back from this. I guess the basic question is, does a tax credit count as refunded cash even beyond the total tax paid?
February 5, 2009 3:38 PM PT
I also bought my first house Jan 8,2008 and i think this is so stupid that i don't qualify for the credit just because i bought 3 months before. I emailed the congressman, senator and the white house. Everyone needs to complain about this. It is not fair!!!!
February 5, 2009 7:46 PM PT
I just got the tax credit for $7500.00 on my taxes. Do I file an amended return to get the other $7500.00 that I am entitled? When can I do this? This is the only year when I will get the full credit because my income will be much higher in 2009.