If you’re planning on purchasing a home and claiming the first-time homebuyer tax credit, you’d better get a move on: the deadline to do so is April 30.
You must close on the home on or before April 30. Verbally agreeing to purchase the home doesn’t count. Being in escrow doesn’t count. You must be in possession of the home’s title. In other words, you must own it.
A well-researched and easy-to-understand explanation of how to claim the tax credit is on an FAQ website put together by the National Association of Home Builders. It goes into much detail and answers a ton of questions.
Yet here in a nutshell is how to claim the first-time homebuyer tax credit:
Any type of home is eligible, house, condo, townhome, mobile home, even a houseboat. New or existing homes. All are eligible so long as the home will be your primary residence.
According to the FAQ page mentioned above, a first-time homebuyer is someone who “has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.”
What that means is that if you’re married and didn’t own a home in the last three years, but your spouse has, the two of you don’t qualify for the new-homeowner tax credit.
But if you and your partner are not married and one of you hasn’t owned a home in the past three years, you can qualify, even if you purchase it jointly.
In addition, if you own property that’s not your primary residence (rental property or a vacation home), you can still qualify for the tax credit.
As for the amount of the tax credit itself, it’s being touted here there and everywhere as the $8,000 tax credit. But you should be aware that if you purchase a small home for $60,000 (which are available in distressed areas of the country), you may not claim the entire $8K because the credit is “equal to 10 percent of the home’s purchase price up to a maximum of $8,000.” So if you by a house for $60K, you’ll be able to take a $6,000 credit.
The credit really works best for singles grossing less than $125K or married couples filing jointly grossing less than $225K a year. Make more than those figures and the amount of the credit you may claim lessens.
You must buy a home that costs less than $800K. You also can’t buy the home from a family member (siblings, parents, grandparents, children, in laws, cousins, aunts and uncles, etc.).
Perhaps the greatest thing about the tax credit is how it can put money back in your pocket. A tax credit differs from a tax deduction in that the credit reduces “dollar-for-dollar” what you owe in taxes. If you, for example, you owe the IRS $8K in taxes, the $8K tax credit wipes that obligation out. You owe the IRS nothing.
As with just about anything to do with taxes, the rules for claiming the first-time homebuyer tax credit aren’t simple; you may wish to consult with a tax professional as you wend your way through the process of claiming your credit.
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