Update on the First-Time Homebuyer Tax Credit

Many people became first-time homebuyers in 2008 and 2009, thanks to the Housing and Economic Recovery Act of 2008 and the American Recovery and Reinvestment Act of 2009. The popular First-Time Homebuyer Credit, offered through the IRS, gave over 1 million new homeowners an extra refundable tax credit of up to $8,000.

As of November 2009, the program has been extended, with new deadlines and new opportunities for approved home purchases.

If you have recently purchased your first primary residence, you can claim the tax credit by filling out IRS Form 5405 and attaching it to your original or amended tax return. The amount of your credit will depend mostly on when your home purchase closed, and is fully refundable if you have no tax liability for that year.

For homes purchased in 2008, you can still amend your 2008 tax return and claim the credit. This credit for up to $7,500 must be repaid with annual payments over 15 years beginning with the 2010 tax year.

For homes purchased between January 1, 2009, and June 30, 2010, you can claim the credit either on an amended 2008 return or a 2009 return. This tax credit has a cap of $8,000 and only has to be repaid if the taxpayer stops using that home as the primary residence during the first three years after the purchase. Homes purchased in 2010 must have a purchase contract signed on or before April 30, 2010, in order to qualify for the tax credit.

In a new provision of the Worker, Homeownership, and Business Assistance Act of 2009, those who have owned their home for more than five years may also be eligible to claim a tax credit for purchasing a new principal residence. The cap on this credit is $6,500, and the same tax form can be used to claim it.

A one-year extension of the deadline was given to the men and women who serve in the federal armed forces, foreign service, and intelligence agencies. More information on this benefit can be found here.

This latest act also introduced some new restrictions on the credit. For home purchases made after November 6, 2009, taxpayers must attach a copy of their settlement statement from the closing to their return. In addition, the credit will be automatically denied to homebuyers under the age of 18 or those who could be claimed as a dependent on someone else’s federal tax return.

Click here for more specific information on the First-Time Homebuyer Credit.