First Time Home Buyer Tax Credit

In February 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009, which granted an $8,000 tax credit to qualified first-time buyers purchasing a residence that year.

With this credit, you can help first-time home buyers get off the fence and buy a house. Before you start sharing this perk with you clients, though, make sure you know about it to answer their questions.

1. To qualify for the 2009 First-Time Home Buyer Tax Credit, a home must be purchased between January 1, 2009 and December 1, 2009.

2. In order to qualify for the full $8,000.00 tax credit, the house must be at least $80,000.00. Any home that is purchased for $80,000.00 or more will qualify for the full $8,000.00 credit. The credit will be of the home’s purchase price, up to $8,000.00. So if the house costs less than $80,000.00 – say $75,000.00, 10% of the cost (in this case, a $7,500.00 credit).

3. A first-time home buyer is defined as a buyer who hasn’t owned a principal residence for three years prior to the day of the 2009 purchase. So if the last time your client owned a home was in 2005, it’s technically their “first” home. Married joint filers must both


meet this requirement in order to claim the credit on a joint return.

4. The income limit for claiming the full tax credit for married taxpayers filing a joint return is $150,000.00. Married couples filing jointly cannot have an income of more than $150,000.00 to qualify. If the couple makes more they don’t lose out entirely, thought. The credit phases out for married couples (filing jointly) with $170,000.00 in annual income, with a smaller credit being awarded for the higher amounts. Learn more about the formula at REALTOR.org.

5. The income limit for claiming the full tax credit for a single taxpayer is $75,000.00. Similar to married couples filing jointly, singles making more than $75,000.00 in annual income doesn’t necessarily lose out entirely on the benefit of the credit. The credit phases out for single filers earning between $75,000.00 - $95,000.00. Learn more about the formula at REALTOR.org.

6. A home buyer’s income for tax credit eligibility will, for most individuals, be defined and calculated as Adjusted Gross Income (AGI) on their IRS 1040 income tax return forms. AGI includes wages, salaries, interest and dividends, pensions and retirement earnings, rental income, and several other elements. AGI is the number that appears on the bottom line of the front page of a 1040 form.

7. The most significant difference between this tax credit and the one Congress approved in July 2008 is that the repayment feature was eliminated. The 2008 home buyer tax credit that Congress approved was basically an interest-free loan but it had to be repaid over 15 years, whereas the 2009 tax credit does not have to be repaid. The 2008 tax credit also had a limit of $75,000.00.

8. All types of homes qualify for the tax credit. Basically any home that is used as a principal residence qualifies for the tax credit, including single family houses, mobile homes, townhouses, condos, manufactured homes and even houseboats. Generally you must spend 50% or more of your time in the home for it to be considered a principal residence.

9. To claim the tax credit, it the needs to be claimed on a federal income tax return. It’s that easy. Just claim it on a federal income tax return; no pre-approval is necessary. Home buyers will need to complete IRS Form 5405 to determine their credit amount and then claim that amount on Line 69 of their 1040 income tax return.

10. The home must be a principal residence that is owned by the occupant, so vacation homes and rentals would not be eligible for the tax credit.

11. Buyers are usually eligible for additional credit, if their entire income tax liability for the year is less than their eligible credit. Any credit amount unused will be refunded as a check to the buyer. So for example the purchaser, if eligible for a full credit, would receive the difference between the $8,000.00 credit amount and the amount of tax liability.

12. Owners have to stay in their homes for three (3) years without having to repay the tax credit. The home cannot be sold until three years after the purchase, or owners will be required to repay the tax credit. This is to prevent buyers from flipping properties in order to case in on the credit.

13. Some common misconceptions:

a) The credit can be used as part of a buyer’s down payment. Simply put, it cannot be used in this manner.
b) Homes purchased in 2008 can still take advantage of this credit. This is not true.
c) Properties outside the United State are also eligible. This is not accurate.


By Dan Posternock, based upon Realtor.org Quiz, May 2009.


***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.