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Ask an Expert: Can You Still Get a
Mortgage?
Understanding
Recently approved First Time Home Buyers IRS Tax credits $7,500
& $8,000.
Sacramento, March 21, 2009
Amarveer Dhillon
Officials at the Internal Revenue Service (IRS) and tax specialists
have reported an increase in call volume from home buyers who are
confused about the qualifications for the $8,000 federal tax credit
for first-time home buyers. Some also need assistance understanding
the differences between the $7,500 tax credit signed into law last
year, and the $8,000 tax credit added this year.
MAKING SENSE OF THE STORY FOR CONSUMERS
• First-time home buyers – those who have not owned
a principal residence for three or more years – received two
tax credits over the last two years. One was passed and signed into
law in 2008, the other in 2009.
• The 2008 credit is a tax credit for first-time home buyers
who purchased a house between April 8 and Dec. 31, 2008. The home
buyer may claim 10 percent of the home’s purchase price, as
a credit, capped at $7,500. Although called a “tax credit,”
this homeowner benefit actually is a 15-year interest-free loan,
which must be paid back in equal installments over a 15-year period.
• The 2009 credit is for 10 percent of the home’s purchase
price, capped at $8,000. This credit is for first-time home buyers
who purchase a house between Jan. 1 and Nov. 30 of this year. The
$8,000 tax credit does not have to be repaid.
• In both cases, the home buyer may choose to claim the tax
credit on either the 2008 or 2009 federal tax return.
• The tax credits are offered on a sliding scale, based on
income. Individuals with annual incomes of $75,000 or less may be
eligible for the full amount of the tax credit. Married couples
filing jointly must earn less than $150,000 to qualify for the full
amount. Individuals earning between $75,000 and $95,000, and married
couples filing jointly who earn between $150,000 and $170,000, may
be eligible for a smaller portion of the tax credit, but not the
full amount. The tax credit is not available to individuals who
earn more than $95,000 or married couples filing jointing who earn
more than $170,000.
• Nonresident aliens, homes outside of the United States ,
and homes inherited, gifted, or acquired from a relative are exempt
from the tax credits.
Below are some of the Questions and Answers for more clarifications.
The recently enacted economic-stimulus law contains an unusually
attractive new tax break for many home buyers -- if they can only
figure out how it works.
The new law sweetens a provision known as the "first-time home
buyer credit." In essence, if you meet certain qualifications,
such as buying a home from Jan. 1 through Nov. 30 this year, you
may be eligible for a tax credit of as much as $8,000. You also
have a choice of claiming the credit on your federal income-tax
return for 2008 or 2009. A credit is typically more valuable than
a deduction, since it eliminates your taxes on a dollar-for-dollar
basis -- and in this case, you may get it even if you don't owe
any taxes.
But Congress made the home buyer-credit fine print so devilishly
tricky that many Americans are likely to have to pay an expert for
help in deciphering it. "We've had numerous calls because people
are confused," says Claudia Hill, owner of Tax Mam Inc., a
Cupertino, Calif., tax-services firm. "The problem is when
things are this complicated, many people don't get the benefits
that Congress intended for them."
Internal Revenue Service officials recently issued a revised form
and instructions. Even so, Nancy Hays of H&R Block Inc., the
Kansas City, Mo.-based tax-preparation company, describes the credit
as "crazy complex."
Here are answers from IRS officials and tax advisers to some questions
about the credit.
Q: Who can claim the credit?
A: In general, the IRS says you may be eligible if you bought your
main home, located in the U.S., after April 8, 2008, and before
Dec. 1, 2009 -- and if you (and your spouse, if you're married)
haven't owned any other main home during the three-year period ending
on the date of purchase. That means you might be eligible even if
you owned a home for many years before that period.
However, there are numerous other qualifications.
Q: How much is the credit?
A: That depends on when you bought the home and other factors, such
as your income and the home's price.
If you bought during the 2008 period and qualify for the credit,
the maximum credit is generally $7,500. But it's only half that
amount if you're married and filing separately from your spouse.
Even though it's called a credit, it's really an interest-free loan.
You generally have to repay it over a 15-year period, without interest,
in 15 equal installments, the IRS says. (There are several exceptions
to this repayment rule. We warned you this was tricky.)
The rules are more generous if you buy a new home during the 2009
period and meet all the qualifications. In that case, the maximum
amount generally is $8,000, or half that amount if you're married
filing separately. More important, you don't have to repay the credit
at all unless that home "ceases to be your main home within
the 36-month period beginning on the purchase date," the IRS
says.
Initially, there was some confusion about whether the $8,000 maximum
credit would apply if someone bought a home in 2009 and chose to
claim the credit on their return for 2008. It's now clear the $8,000
maximum limit does indeed apply, says Mark Luscombe, principal tax
analyst at CCH, a Wolters Kluwer business. Naturally, though, "this
doesn't help people who actually bought homes in the 2008 qualifying
period, and who are limited to a $7,500 credit that must be repaid,"
he says.
Additionally, the credit generally is limited to the amounts mentioned
above -- or 10% of the home's purchase price, whichever is less.
For example, if you bought a new home this year for $70,000, the
maximum amount of the credit would be limited to 10% of that amount,
or $7,000.
Q: How do the income limits work?
A: You may be eligible for the full amount of the credit if your
adjusted gross income, with certain modifications, is $75,000 or
less -- or $150,000 or less if married and filing jointly. However,
the credit begins to disappear, or "phase out," if your
income exceeds those amounts. You can't claim the credit at all
if your income is $95,000 or more, or $170,000 or more if married
and filing jointly, the IRS says.
Q: What if I built a new home? How does that work?
A: You are considered having purchased it "on the date you
first occupied it," the IRS says.
Q: I own more than one home. How do I figure out which is my "main"
home? And does it have to be a house?
A: The IRS says your main home is "the one you live in most
of the time." No, it doesn't have to be a house. It can be
"a house, houseboat, house trailer, cooperative apartment,
condominium, or other type of residence."
Q: Are there are other qualifications?
A: Yes. You can't claim it if your home is located outside the U.S.
You also aren't eligible if you're a nonresident alien, if you inherited
the home or got it as a gift, or if you acquired it from a "related
person," such as your spouse, parents or grandparents.
Q: Will the credit help me if I don't owe any tax?
A: Yes. The credit "may give you a refund" even if you
owe no tax, the IRS says.
Q: What form do I use?
A: Form 5405. The IRS recently revised it and posted it on its Web
site (www.irs.gov), along with instructions. Dean Patterson, an
IRS spokesman, says "programming is being done to electronically
process Form 5405" to claim the $8,000 credit for homes bought
in 2009. The IRS "will be able to process these returns electronically
beginning March 30" this year, he says.
Q: Where do I put the credit on my Form 1040?
A: Line 69.
Q: I've already filed my return for 2008. Can I still claim it?
If so, how?
A: Yes. File what's known as an "amended" return. Use
Form 1040X, and attach Form 5405.
Q: If I buy this year, should I claim the new credit on my 2008
or 2009 tax return?
A: That can be tricky, and you may need to consult a tax pro. In
general, most people who buy this year and qualify for the new credit
probably will want to take it on their tax return for 2008, says
Tax Mam's Claudia Hill. "They'll get their money more quickly,"
she says.
But some people might be better off claiming the credit on their
2009 returns. These would include eligible home buyers who buy this
year, whose financial circumstances changed during 2009 and who
might qualify for a larger credit on their returns for 2009 than
the prior year. An example would be someone whose income was too
high to get any of the credit for 2008 but who recently lost his
job and thus would be eligible for the full credit on his 2009 return,
to be filed next year.
* * *
Briefs: The IRS says it received a total of about 63.9 million
individual income-tax returns this year through March 6. That was
up 0.7% from the same period through March 7. ... Electronically-filed
returns rose about 6% to 51.8 million.
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