First-Time Homebuyers Credit: 7 Surprising Facts

1. You don’t have to be a first-time homebuyer to qualify. 

True, the tax credit is designed mainly to help people who’ve never been homeowners.

But if you’ve owned a home before, you can still qualify, as long as the home wasn’t your main residence in the previous three years. This applies even if you’ve been renting out your former main home in the past three years.

And here’s an interesting twist. You can qualify for the credit even if you have owned a main home outside of the United States in the past three years.

2. Married couples don’t qualify if EITHER spouse has owned a home in the past three years.

To be considered a “new” homebuyer, you can’t have owned your principal residence within the past three years. You can’t get around this, even if your spouse has not owned a house in the past three years and buys the principal residence, leaving you off the deed. What counts is that you’re married.

However, two people who aren’t married can buy a home together – and one can get the credit, even if the other person doesn’t meet the three-year rule.

What if those two people later get married? Does the credit have to be repaid? No. The IRS says the eligibility for the credit in this case is determined on the date of the home purchase.

3. Mom and Dad can help pay the mortgage, and you can get the credit.

What if your parents make some or all of your monthly mortgage payments on the home you buy? You can still qualify for the credit. You must own the home, it must be your primary residence, and you must meet the requirements on income and prior home ownership.

4. The home you purchase doesn’t have to be a house.

It can be a condo or a townhome. It could also be a motor home or a houseboat, just as long as it’s your principal residence. Your principal, or main, residence is the place you live most of the time. So the credit can’t be used to buy a vacation or a second home.

5. If you want to rent out part of your main home, you still qualify to receive the credit.

As long as you still live there most of the time, you can rent out parts of the home and still qualify for the credit.

6. You don’t have to wait until 2010 to get your money.

While you must buy a home before the November 30, 2009 deadline to qualify for the credit, you can get the money right away. Rather than claim the credit on your 2009 tax return when you file in 2010, the IRS will let you take the credit on your 2008 return.

So if you have already filed your 2008 return, you can amend it to claim the credit. File Form 5405 (First-Time Homebuyer Credit) along with your amended return. You’ll get the money faster if you choose to have it deposited directly to your bank account.

7. You might even be able to get your credit upfront.

The IRS cautions taxpayers not to claim the credit just because they expect to buy a home. Most people must close on the purchase before they claim the credit.

However, the federal government is trying to lower the barrier for first-time homebuyers by allowing some to tap into the credit before completing their purchases.

Buyers who obtain FHA-backed home loans can use the credit to pay closing costs, buy down mortgage interest rates and make partial down payments. Buyers will be required to put up their own money— a down payment of at least 3.5% — before applying the credit to any remaining down payment.

To qualify for the First-Time Homebuyers Credit, you have to meet certain income requirements. If you are a high-income earner, you could get less than the full credit or none at all.

The credit is reduced if your adjusted gross income (AGI) is greater than $75,000 (for single taxpayers) and $150,000 (for married filing jointly), and it disappears completely once your AGI exceeds $95,000 (single) and $170,000 (married filing jointly).

Your AGI is basically your taxable income before your subtract your standard or itemized deductions and exemptions.

For more information, see “Taking the New 2009 First-Time Homebuyer’s Credit.”