Note: The content of this article applies only to taxes prepared for 2010. It is included here for reference only. To claim the homebuyer's tax credit for 2010, you will need to file IRS Form 5405. Here are the details.
In an effort to stimulate the economy, the federal government allows you to claim a tax credit that covers a portion of the costs to purchase a new home. If you are eligible to claim the credit, the IRS requires you to complete Form 5405 and attach it to your personal income tax return along with other documentation.
Eligible first-time homebuyers
You may be eligible for the tax credit if you purchase your first main home between Jan. 1, 2009 and April 30, 2010. You can also qualify if you enter into a binding contract before May 1, 2010 to complete the purchase of the home by June 30, 2010 and actually close on the home no later than Sept. 30, 2010.
The IRS requires you to provide documentation that proves you completed the purchase within the relevant time-frame. Generally, the settlement statement you receive that includes the names of the buyer and seller, property address, date of sale and purchase price is sufficient.
The maximum credit you can claim is the smaller of $8,000 or 10 percent of the home’s purchase price. When you fill out Form 5405, be sure the check the appropriate box indicating that you qualify as a first-time homebuyer.
Eligible long-time residents
A smaller credit is also available to existing or former homeowners who purchase a new main home. To qualify, you must own a home and use it as your main residence for five consecutive years during the eight-year period ending on the date you close on the new home.
Long-time residents are subject to the same closing date requirements as first-time homebuyers. However, in addition to submitting Form 5405 and a settlement statement for the new home, you must also provide the IRS with documentation that proves you meet the five-consecutive-year requirement. You can satisfy this requirement by submitting mortgage-interest statements, property tax records or proof of insurance coverage. The maximum credit is the smaller of $6,500 or 10 percent of the home’s purchase price.
Credit eligibility restrictions
To qualify for the credit as either a first-time homebuyer or long-term resident, the purchase price of your new home cannot be more than $800,000. The IRS also imposes income limitations. You cannot claim the credit if your Adjusted Gross Income (AGI) is $145,000 or more, or $245,000 for couples filing a joint return. Additionally, a taxpayer who can be claimed as a dependent to another taxpayer is ineligible to claim the tax credit on their personal income tax return.
Preparing Form 5405
The IRS requires you to prepare IRS Form 5405 before you can claim the credit. This two-page form requires you to provide all details relating to the home purchase such as the price you pay and the date of closing, as well as income information from your Form 1040. The form also provides a 10-step credit calculation. If claiming the credit will increase your refund amount, you must ensure that Form 5405 is accurate and that you provide all other documentation to avoid delay in receiving your refund check.
When you use TurboTax to prepare your taxes, we’ll do all the calculations and fill in the appropriate forms for you. You’ll just need to answer some simple questions about your home purchase.