First-Time Homebuyer Tax Credit

Update on the First-Time Homebuyer Credit: The Taxpayer Advocate Service (TAS) has received phone calls and e-mails from individuals experiencing difficulty in obtaining tax refunds due to a glitch in the processing of returns relating to the First-Time Homebuyer Credit. Nina Olson, the National Taxpayer Advocate, released this update.

Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchased a home before December 1, 2009, could receive a tax credit for 10 percent of the purchase price of the home. Depending on income and filing status, the credit could be worth up to $8,000. Homebuyers had the option of claiming the credit when filing 2008 tax return, or claiming the credit on 2009 tax returns.

The Homebuyer Credit was expanded and extended through the Worker, Homeownership, and Business Assistance Act of 2009, which went into effect November 6, 2009, and added documentation requirements for claiming the credit. Under that law, the deadline for purchasing a home was extended to April 30, 2010. Additionally, if the buyer entered into a binding contract by April 30, 2010, the buyer had until June 30, 2010, to close on the purchase.

In July 2010, legislation known as the Homebuyer Assistance and Improvement Act of 2010 further extended the closing deadline for eligible homebuyers. Under the new law, taxpayers are eligible to claim the credit if they entered into a written binding contract to buy a principal or primary residence by April 30, 2010, and the closing on the home will occur by September 30, 2010.

For all 2010 qualifying purchases, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax returns.

Income Limits
For homes purchased after November 6, 2009, the full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000 for individuals, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.

Additional Requirements
For purchases that occurred after November 6, 2009, the following additional requirements must be met:

• Dependents are not eligible to claim the credit.
• No credit is available if the purchase price of a home was more than $800,000.
• A purchaser must be at least 18 years of age on the date of purchase.

For Members of the Military
Members of the Armed Forces and certain federal employees serving outside the U.S. for at least 90 days during the period beginning after December 31, 2008, and ending before May 1, 2010, have an extra year to buy a principal residence in the United States and qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and close on the purchase by June 30, 2011.

Non-First Time Homebuyers
There is also a “long-time resident” credit of up to $6,500 for people who do not qualify as “first-time homebuyers.” To qualify as a long-time resident, a buyer must have owned and used the same home as a primary residence for at least five consecutive years during the eight year period that ends on the date of purchase on a new home that will be used as a primary residence.