First-time Home Buyer Tax Credit Provides up to $7,500
Did you know that if you are an American buying your first home between April 9, 2008 and July 1, 2009, the U.S. government will give you up to $7,500 in the form of a federal tax credit?
Update: New legislation in 2009 has expanded upon the initial $7,500 tax credit. Although there is valuable information here for people who purchased homes in 2008; anybody buying in 2009 may also want to read about the $8,000 tax credit and how to claim this credit.
The tax credit is part of recently-enacted legislation to help the nation recover from the recent mortgage crisis. Basically, the first-time home buyer tax credit is designed to keep Americans buying homes. Not so much for our sake, but for the sakes of builders, real estate agents, and mortgage lenders who earn their livelihood from home sales.
Still, this tax credit, along with soft real estate prices, make it an excellent time to buy a first home.
How does the tax credit work?
The tax credit is basically an interest-free government loan of 10% of your home purchase price, to a maximum of $7,500, to help defer the initial costs of buying your first home.
Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 can get the full tax credit, and taxpayers with higher incomes may be eligible for a partial credit.
Taxpayers can claim the credit on their federal tax returns for the year in which the home was purchased. The taxpayers will then repay the credit over the subsequent 15 years of tax returns, interest free.
For more information, the National Association of Home Builders provides some consumer information about the tax credit.
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Published on August 20th, 2008.
Related Posts
- $8,000 First-Time Home Buyer Tax Credit
- $6,500 Home Buyer Tax Credit
- How to Buy Your First Home
- Frequently Asked Questions About the First Time Home Buyer Tax Credit
- Can I Access the Funds from the First Time Home Buyer Tax Credit Before Filing my 2009 Tax Return?
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Isn’t this just a loan back of our money we have paid into the tax system? I guess if it were me I would want to keep my loans at a minimum. $7500 over 15 years (180 months) is only @42/month is that really going to help that much?
It is a loan, yes, but completely interest free. You could take that $7,500 and invest it and earn returns, which is pretty good.
I figure the government is thinking that home buyers would need this money more in today’s weak economy than over the next 15 years. Still, a part of this is applying to people’s tendency to think short-term (a &7,500 tax credit next year) in order to bolster the real estate and construction industries.
I guess my point is this: If $7500 tax credit will make or break a $150K household there is no hope for fixing this problem.
Most likely a couple with a 150K income will not be looking at a $75,000 house purchase, it will be much larger. The lower income couple that are looking at the $75K house on a $35-50K income should look real close before extending into another loan.
make sense?
Keep in mind that you can take this money and put it towards the principal of your mortgage. This can save you a lot of $$ that would have been paid towards interest. This loan is going to allow me to cancel my PMI as well, so I wouldn’t put it in your bank account…..put it back into your investment
what about new home purchasing under a land contract? am i still eligible to claim this credit???
Hello Chris,
I am not that skilled in different types of R.E. Can you explain what purchasing under a land contract means?
question me and my girlfriend are buying a house 50/50 i was curious do both of us get the 7500 dollar credit on our tax return since we arnt married yet or do we get half each
Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
What ???!!!!
Why is it that single people are jerked around like this ? Always the case.
what i was asking is do me and my girlfriend get 7500 each since we are buying the house 50/50 or do we haft to split the 7500
Taylor I would like to know the answer to your questions as well. I happen to be in the same boat.
To Taylor and Kyle, you raise an excellent question. Unfortunately my expertise kind of falls short of detailed tax questions. I did a little digging but haven’t found an answer yet.
I did see, however, that married couples filing separately must divide the $7,500 credit into two credits of $3,750. I would suspect, that the IRS wouldn’t have allowed a loophole for single filers, and you would have to do the same rather than claiming $7,500 each.
If there are any accountants or tax attorneys out there who know otherwise, please weigh in!
I am wondering why April 9, 2008 was selected as the starting date for this. I closed on my house on March 21, 2008, so I am unhappy that I missed this by less than 3 weeks.
Hey Jennifer. I contacted Senator Voinovich’s office in Washington and asked the exact same question. My husband and I closed on our home in Ohio in Mid-March and we are first time home buyers. They told me that the April 9th date was when the “bill” actually came about and that “that date just never really went away.” They stuck with that date throughout the entire process. I have written to my congressman, senator and even emailed the President (not that it will do any good). I’m usally a quiet one, but thought I would be proactive when it came to this. I didn’t understand why, if we are going to claim this “house purchase” on our 2008 income tax forms…why it couldn’t be from January 1st on? They are supposed to be getting back with me, but I’m not holding my breath. The only thing I asked was that the “wording” of the law be amended. But, like I said, I’m not holding my breath. Congrats to those who are eligible for the interest free loan though.
for taylor and kyle, you know i really don’t see why you couldn’t get $7500 each. i mean you both are first time home buyers with qualifying incomes in the qualifying time period. just because you bought the same house doesn’t mean you didn’t each buy something… i don’t think the irs is going to check that carefully, you know? just apply for it on your taxes and see what happens…that’s what i would do (but don’t spend the other $7500 for a while, just in case!! they might want it back, ya know)
and i’m sorry danielle
that really sucks…unfortunately i don’t think there’s anything you do…but it’s good that you’re trying!!
I am about to purchase my first home through the VA. My lender gave me the option to go with a 6% loan with no tax credit and a 6.5% loan with the tax credit. Why can I not get the tax credit with the 6% loan or are they pulling a fast one. Thank you
Ryan
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=110_cong_public_laws&docid=f:publ289.110
That is the website for the entire bill.
I too find it odd for the date to be April 9th and my only conclusion is that an analyst predicted the market to slup after that date.
My wife and I closed on our first home on March 31st, 2008 so we too are S.O.L. and I do find this a little unfair to those of us that are filing our 2008 tax returns and have bought on the 8th of April or sooner
For Tayloe and Kyle right out of the bill: Other individuals.–If two or more individuals who are not married purchase a principal residence, the amount of the credit allowed under subsection (a) shall be allocated among such individuals in such manner as the Secretary may prescribe, except that the total amount of the credits allowed to all such individuals shall not exceed $7,500.
Sherry, THANKS for finding that! As I suspected, but great to have it from the source!
My husband and I will buying a house within the next month. I’m a first time home buyer, but my husband has owned a home before. Will I be able to qualify for the tax credit?
As long as he has not owned his primary residence in the past 3 years you will both quailfy for the credit Tina.
I am going through the MHDC program which is assisting me with my 3% down payment, is there anyway that I can be eligible for this tax credit?
In my review of the bill I didn’t see any stipulation thats would prevent you from getting the credit. Are you going FHA? If so prepare to have 3.5% as they have just changed the minimum down payment to such.
i was told about this . but noone said it was actually a loan. interest free or not does any body need another loan right now
Sure do. I could use it to help build equity in my new home including making an extra payment towards the princable of my 30 yr loan. Would I miss the $500 a year from my tax return??? Sure, but I would just have to go without buying a new man toy every spring till things got better. I could do so many things with $7500 but thanks to Nancy I don’t qualify in 2008 because I bought my home 10 days to earily. Hell I would have waited 10 day to close had I known H.R. 3221 was going to pass.
I am right with R. Hammond. I bought my house 19 days too early. I had never even heard about this until my coworker mentioned it last month because he is buying his first house. If I had known back then, I would have waited a little longer. And to answer Stacy – does anyone need another loan right now? YES!! An interest free loan. You have so many options with this money. Pay off bills so you are not overburdened with debt. Put more money down on your mortgage. Or put it away in some sort of saving or CD and earn interest on it for 15 years. I see no issues with any of these options. I wish it was an option for me.
a variation on tina’s (#20) question. my girlfriend and i just bought a home together. it’s my first home, she currently owns another home. do i still qualify for the full credit? judging by other comments i think yes but does anyone know definitively?
do i qualify for the tax credit if i am going through IHA for my loan?
Can the credit be used for downpayment?
Allan, the credit is post process. Meaning only after you close on the home can you file for the credit. Perhaps after you receive your tax refund (with the credit) you could refinance and use the money as a down payment to lower your monthly payment.
My boyfriend and I just bought a house in May. Our incomes together are not over 75,000. Are we eligible for the intire amount? If not, how do I find out how much of the tax credit we are eligible for??
I just went out this weekend looking at new homes. The one person I talked to told me about the tax credit. From what I know You can file as soon as the house is bought to get that money asap. Then you can pay off CC’s or loans or anything. You don’t have to wait to file your taxes. I also found out that in Fort Collins, CO they give first time home buyers $10,000 grant that you don’t have to pay back.
For Question # 32: Regarding your claim that you can file for the tax credit as soon as you purchase your new home, how can you file for that credit since the tax forms for the 2008 Tax Year are not finalized yet, and taxes may only be filed after that particular calendar year has expired. Therefore, to file for a credit on the 2008 Tax Return, the first date available to file a 2008 tax return via mail is January 2, 2009, and January 16, 2009 to file electronically. If you are aware of a “fast-track” method of acquiring that tax credit, please let us know how we can go about it.
I’m sure many home buyers could use that $7,500.00 right away, and desire not to wait until the first checks or direct deposits are submitted by the IRS on January 28th or later in the year 2009. However, I believe that it may be possible that if you purchased your first home before July 1, 2009, and qualify for the tax credit in that year, maybe one could file an amended tax form called 1040X for the previous tax year, which would be 2008, and submit a claim for an immediate $7,500.00 credit in that respect after the purchase of one’s home. This would effectively be a retroactive credit which was available in 2008, but that opinion of mine is not engraved in stone. At this point, the law is relatively new, and there are obviously some loopholes within this law which actually could be conducive to fraudulent returns being filed since the IRS is not requiring actual documentation that one did in fact purchase a new home. I am unsure about some of these new laws regarding this credit and I am still conducting research on this matter. By the way, I am a Tax Accountant and I have “bookmarked” this website to check various opinions from time to time. Congratulations to everyone who qualifies for this excellent piece of legislation, which I personally believe is some of the best legislation that Congress had to offer for the common people (those that earn $150,000 or less annually) in many years.
Doug
We are re-financing through FHA “under this new legislation” and our Broker is claiming we can take the Tax Credit for this re-fi. I also have an investment property that is being re-fied as well. He (Broker) claims we can take the credit for that as well! I thought this sounded fishy and am trying to find anything that supports his claims. It certainly doesn’t sound like it fits under this program. Does anyone know of any other programs under which his claims may be supported?
As many of you, I too purchased my first home 19 days too early. This date (April 9, 2008) aside, I qualify for the credit…very irritating! But why is it that you don’t REALLY have to technically be a “first time home buyer”? They can look past the fact that someone owned a home say 4 years ago, but they can’t budge on the April 9th date?
Paul,
I do believe your broker is wrong. I have read the Tax Credit portion of the bill in its entirety and it simply states that to qualify you must be a “first time home buyer”. The exception to the rule is that you cannot have owned your primary residence 3 years prior to the closing date when buying a new home.
Julie,
I feel your pain.
With reference to the “three year rule”, that would include all of the individuals who are deeded to recently purchased residence. In other words, if a couple recently got married, and one of the spouses owned a property within that three year window, “both” buyers are disqualified from the Home Buyer Tax Credit. This also applies to non-married couples or any other relationships, i.e., parent and adult child, brother and sister, etc. In this event, it may be more beneficial to deed the home solely to the individual who had not owned a property within the previous three years for the purpose of legally qualifying for the $7,500.00 credit. Also, I am rather certain that investment properties do not qualify for this particular credit, and I am unaware of any other potential credits other than possibly the “Low Income Housing Tax Credit”.
Moreover, in the “fine print”, regarding the “First time buyer” of a residence under this new tax law, the exchange of real estate may not be from a close relative, such as parent, child, grandparent, etc. I would imagine that this clause was included so that homeowners simply don’t transfer their residence into the names of their child, or their parent, whichever applies, at a lower than fair market value just for the purpose of acquiring the $7,500.00 credit. That would be counter-productive for the purpose of this legislation. Although I believe that this is an excellent piece of legislation, there is great potential for fraud, and I am not certain if that potential was foreseen by the Legislators in the rather quick passage of this Bill. The above statement is simply my opinion.
Finally, with reference to the April 9, 2008 and June 30, 2009 “window” to qualify for this credit, I am rather certain that the effective date of purchase is the “Settlement Date”. So if you were to purchase a residence in 2009, you must “settle” on or before June 30th of that year. I believe that if you settle on July 1st, 2009, you lose the credit (unless, of course, if the Legislators extend this law).
Kudos to all of the First Time Home Buyers who qualify for this credit.
Doug
Hey there,
We are first time home buyers and The owner of the house is going to finance the home for us for 30 yrs at a rate of 7% will we qualify for the for the tax credit. Just to recap here goes private mortgage that will be recorded from a private seller wil be qualify?
Thanks Gabriela
My answer would be Yes to #38. As long as the Settlement is recorded in the Recorder of Deeds in your local jurisdiction, and the home is in your name. However, you may not qualify if the Seller is a close relative, i.e., parent, grandparent, child, etc. Additionally, the settlement date must be on or before June 30, 2009 to qualify (unless Congress extends that deadline in further legislation).
My husband and I closed on our first home August 29,2008. Our loan was through FHA, and we used the down payment assistance program to help with our downpayment. Are we still eligible for the 7500 tax credit? I’ve heard both ways on this so I am not sure.
There is a new IRS Form 5405 entitled “First-time Homebuyer Credit” which would be required for attachment to your tax return. It appears that one must file the 1040 (Long Form) to qualify for this credit. If one typically uses the 1040EZ or 1040A Forms, simply use the 1040 Form in lieu of the above and attach the new 2008 Form 5405 with your return.
Regarding the down payment assistance program, my answer would be “yes”, you are eligible based on the information you provided.
IF TWO PEOPLE PURCHASE A HOME (UNMARRIED) THE CREDIT IS DIVIDED BY HOME OWNERSHIP IE: 50/50 60/40 ETC.
Ok I’ve asked about the down payment assistance program, one more question I need help with. If I was getting a refund on my return this year, is the refund maximized to 7500.00 or do I get my normal refund plus 7500.00? For example, I am getting a refund of 2500.00. Will I get 7500 plus the 2500?
To Amanda, if you do qualify for the First-time Home Buyer Tax Credit, based on your hypothetical depiction, your refund would be $10,000 when you file your 2008 income tax return early next year. Hopefully, the new Form 5405 will be ready for use in the early part of the 2009 tax season. My concern is that when the IRS generates new forms, heretofore unique, there frequently exists some problems in the utilization and transmission of these new forms. Please check with your software company and/or tax adviser for the first day when the Form 5405 may be transmitted electronically, provided that you would be efiling. It is highly recommended, particularly for refunds exceeding $4,000 to $5,000, to electronically file your tax return with the Direct Deposit option. There are numerous reasons for that advice. Please do not forget about the “disclaimer” that this credit must be paid back in the future, unless you qualify for some of the highly restrictive exceptions. Hopefully this information will have been of some help for you.
I am purchasing my home in Jan. ‘09′ can I file my tax credit on my ‘08′ tax return or do I have to wait until my ‘09′ tax return.
I am buying a building that has two units, does that matter? I will be living in one. Also, there will be two people on the title, the other is not my spouse or a first time buyer himself. Does that still allow me to qualify?
THANKS!
Doug, Following up with #39, I was wondering if you purchase a home and are (1)seller financed (no mortgage with a bank) or private money can you still qualify? (2)What if you have a deal and just take over payments on a house? or (3) what about if you enter into a Lease option contract on a house?
Thank you
$7500 is not up-front money that the home buyer can use as down payment, closing cost or paydown PMI. therefore it would not help a lot of rentars who would like to buy a house. on the other hand it may help somebody who was going to buy a house anyway.
Shaun: With reference to your inquiry, No. 1 would qualify for the 10% or $7,500.00 First Time Home Buyer Credit, whichever is less, however, the amount of the credit would be based on the settlement price, and the Title or Deed must be transferred to the First Time Home Buyer’s name on or before June 30, 2009.
No. 2 would depend on whether or not the Title or Deed is transferred into the First Time Home Buyer’s name. If it remains in the name of the “Seller”, you would not qualify unless the property is transferred no later than June 30th. No. 3 is most likely a “no” – unless transferred before July 1st, but that would defeat the purpose of the Lease Option contract.
To No. 45 above – the answer is “Yes”. “The law allows taxpayers to choose to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008.” That quote is direct from the book. How this would be done in the event you purchased the home after you had already filed your 2008 tax return, I would imagine that you would “Amend” your 2008 taxes using Form 1040X, and add the First Time Home Buyer Credit on the amended tax return. However, I doubt that you may efile the amended return and you would have to wait six to eight weeks to receive that $7,500 credit, or whatever amount you would qualify for. I am uncertain about that, but that’s how I would handle it with my clients unless I find instructions stating otherwise. Possibly the IRS could come up with a way to expedite a refund in this manner, but I am unaware of such a proposal as of this date.
To No. 46 – That’s a good question. Disclaimer – I cannot guarantee absolute accuracy on my answer. My answer would be “yes” for you, based on 50% of the settlement price of the two unit property (if they are combined into one sale). That would apply if the units are similar in nature. If they are dissimilar by a substantial degree, you would most likely have to determine a percentage based on square footage, and use that percentage for the residential part of your property. The other individual would not qualify. Also, you would only qualify for $3,750.00 or 50% of your share of the property, whichever is less. That is the same allowance as if a married couple, filing separately, would receive.
However, I did read that if a married couple purchased a home together, and one of the spouses had owned a residence in the three year period prior to the new purchase, that would disqualify both spouses for this particular credit. Therefore, the disclaimer. If I can find a definitive answer, I’ll let you know.
Hopefully this has been helpful.
No. 3 would be no.
I find this a little unfair. I lost my job in May of this year and can’t find anybody who’s hiring. Unemployment insurance is running out next week. I closed on my house at the beginning of 2007. It’s my first house. I made my purchase in a better market without having any financial problems at the time and now that I’ve fallen on hard times I find out the government is ‘easing the mortgage crisis’ by helping those who purchased houses knowing full well that the economy is currently bad. Buying a house in a bad economy is an irresponsible investment, so why do they get help while I’m left stranded? Somebody who can’t afford a house due to bad economic times can, knowing ahead of time they will qualify for a no interest $7,500 loan, can go irresponsibly go buy a house tomorrow and collect some free government money, meanwhile I’ll be dealing with a foreclosure and deciding whether to buy food or heat next month.