Taking the New 2009 First-Time Homebuyer's Credit

Folks who buy their first home between January 1 and November 30, 2009 can qualify for a tax credit worth up to $8,000. Because a tax credit reduces your tax bill dollar-for-dollar, this new break can put $8,000 in your pocket to help pay for your new digs.

If you would otherwise get an average-size refund when you file your 2008 tax return—about $2,400—qualifying to claim this new credit would boost your refund to $10,400.

Even better: Unlike the $7,500 tax credit available for Americans who bought their first home in 2008, this new version does not have to be repaid.

Last year’s credit—available for first-time homebuyers who purchased after April 8, 2008 and before the end of the 2008—is really an interest-free loan from the government. Qualifying buyers get the $7,500 credit when they file their 2008 returns, but then have to repay the credit, $500 to the IRS each year between 2010 and 2025.

For 2009 buyers, the credit really is a credit: It doesn’t have to be repaid. (One exception: You have to pay back the credit if you sell the house within three years of buying it.)

Some taxpayers claiming the credit for homes purchased in 2009 might want to amend their 2008 tax returns, so they can receive the credit immediately rather than wait to file their 2009 tax returns in 2010. 

For more information, read this article on Amending for the First-Time Homebuyer's Credit. 

You don’t really have to be a first-time homebuyer to qualify. The law defines a first-timer as anyone who hasn’t owned a home in the previous three years. If you buy anytime before December 1, 2009 you can claim the credit on your 2008 tax return.

There is an income limit on this break—both for 2008 and 2009 purchases. The right to use the credit is gradually phased out as Adjusted Gross Income (AGI) rises from $75,000 to $95,000 on a single return, or $150,000 to $170,000 on a joint return. (AGI is basically taxable income before subtracting your personal and dependent exemptions, and your standard or itemized deductions.)

If you report $160,000 of AGI on a 2009 tax return, you’d be halfway through the phase-out zone, so you’d qualify for just $4,000 of credit (half of the $8,000 amount).

Most qualifying taxpayers will claim the credit (10% of the house price up to a maximum of $7,500 for 2008 buys or $8,000 for 2009 purchases) on their tax returns (Form 5405).

This should put money in your pocket within weeks of the time you file your tax return. If you owe more tax with your return than your credit amount, it will instantly reduce your tax bill dollar-for-dollar. If you owe less than your first-time homebuyer’s credit, you’ll get the balance as a tax refund.

Filing your return electronically and having the refund direct-deposited to your bank account is the fastest way to get your money.
 

Most people who use the First-Time Homebuyer Credit will not receive it until after they buy their homes and claim the credit on their tax returns.

However, some buyers can get all or part of their credit up front, to pay for closing costs and all or part of their down payments, thanks to federal and state housing programs:

• The federal department of Housing and Urban Development (HUD) announced May 29 that homebuyers using Federal Housing Administration (FHA) loans can apply the credit to their down payments and closing costs. Buyers must first make a 3.5% minimum down payment to qualify for the loan, but can immediately use the credit for additional down payment or other closing costs.
• In some states, state Housing Finance Agencies and certain non-profit organizations will allow qualified homebuyers to apply the credit to their down payments (without the 3.5 percent buyer's contribution), using financing provided by the agencies or the non-profits.

   For more information, visit the HUD website.

What if you haven’t bought a home yet, but plan to do so in the next few months?

If you have a refund coming without counting on the new credit, you’re probably better off filing your 2008 return as soon as possible so you can pocket the cash. Then file an amended return to claim your first-time homebuyer’s credit.