Purchasing a Home & Federal Income Tax

by HomeLoan.com

Your first house
The Internal Revenue Service (IRS) has once again changed the rules on the first-time homebuyers credit. For tax year 2009, major changes to the credit were enacted, which actually provide a much greater tax benefit if you meet the qualifications and eligibility requirements. The credit, officially titled the Worker, Homeowner and Business Assistance Act of 2009 was signed on Nov. 6, 2009. For the home purchaser, this act expanded on the previous first-time homebuyer's credits. Form 5405 will be completed and attached to your income tax return for 2009.

History

The main difference between the 2009 homebuyer credit and the previous years' credit is that, for 2009, the credit does not have to be repaid. In tax year 2008, the credit was considered an interest-free loan that requires repayment over 15 years. The repayment is part of your 1040 and is repaid at tax time each year.

Who Is

According to the IRS, a first-time homebuyer is a taxpayer who has not owned a principal residence for the previous three years. This rule includes your spouse; in other words, neither of you could have owned a home for three years previously. If you owned a home more than three years ago, you could be considered a first-time homebuyer according to the requirements. If you converted your primary residence to rental property more than three years ago and are now renting an apartment (or house), you qualify as a first-time homebuyer, as long as all other requirements are met.

Limits

You are allowed a credit of 10 percent, up to $8,000, if you meet the stated requirements. The maximum allowable credit limit is $8,000, regardless of the cost of the house. If you purchased a home for $60,000, then 10 percent of that amount, or $6,000, is the figure used for your credit. If your new home was purchased for $150,000, the maximum credit you may claim is $8,000.

Phase-Out

Once you reach certain adjusted gross income limits, the 10 percent credit will begin to phase out. For a single person, you may receive the full 10 percent credit until your income reaches $75,000. At $95,000 adjusted gross income, the credit is disallowed. For a married couple filing jointly, the credit begins to phase out at $150,000, and is disallowed after $170,000 adjusted gross income. If you use a filing status of married filing separately, you are not eligible for the credit if either you or your spouse owned a home together during the previous three years.

Repayment / Co-signer

If you sell or otherwise dispose of your principal years within three years of the purchase date, you are required to repay the credit in its entirety. If you are purchasing a home as your principle residence and need a co-signer, you are still eligible to receive the first time homebuyer's credit, as long as all other rules apply. The home must be the person's primary home and the co-signer cannot be a resident of that home.

Separation

If you and your spouse are not separated, and your spouse is still living in your former primary residence, you are not eligible for the first time homebuyer's credit. The IRS rules impute your ownership of the home, though you are not currently living there. If your spouse sold the home more than three years ago, you qualify as a first-time homebuyer.

Expert Insight

If you have any questions on the first-time homebuyer's credit, consult a tax preparer. You may also contact the Internal Revenue Service and request Publication 530, "Tax Information for Homeowners." This publication is updated yearly; the 2009 version should be available after Dec. 1, 2009.


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