The American Recovery Reinvestment Act has brought a lot of tax benefits to the American people in order to stimulate the economy. After the real estate crash a couple of years ago, the government tried to find ways to stabilize the real estate market since this is one of the major reason why the economy was in a big mess. This is where the First Time Home Buyer’s credit was introduced.
The credit only applies for US resident (non-residents do not qualify) purchasing their main home in the United States. The main home is defined as the home that you lived in most of the time and this can be a single-family house, condominium, town homes, houseboat, cooperative apartment, or a mobile home. Constructed homes also qualify under this credit. Â In addition, your modified adjusted gross income (MAGI) must be less than $95,000 (less than $170,000 for joint filers) if you bought your home before November 7, 2009 OR your MAGI must be less than $145,000 (or less than $245,000 for joint filers) if you bought your home after November 6, 2009.
There are actually two kinds of credit. One is for the first-time home buyer and the credit is worth as much as $8,000 (or as much as $4,000 for married filing separate). The other is for the long-time resident home buyer and the credit is worth as much as $6,500 ($3,250 for married filing separate).
The First-time Home buyers credit can be claimed if you meet BOTH of Â these requirements:
- You bought your main home in the United States after 2008 and before May 1, 2010 (or October 1, 2010, if you entered into a written binding contract before May 1, 2010)
- You (and your spouse, if married) did not own any other main home during the three-year period ending on the date of the purchase.
Special Rule for long-time resident of the same main home:
Congress has extended the home buyer’s credit not only for first time buyer but non-first time buyers as well. However, you (and your spouse, if married) must have owned and used the same home as your main home for any period of 5 consecutive years during the 8-year period ending on the date of purchased of the home for you to qualify. In addition, you must also meet the “purchase date” requirement, which is the same as Requirement (1) for the First-time Home Buyers Credit.
How to Claim the Credit
Repayment of Credit
If you bought your home in 2009 or 2010, you must repay the credit if Â the home stops being your main home or dispose of the home within the 36-month period starting on the purchase date. This includes circumstances where you sell the home, you convert it to a business or rental property, the home is destroyed, condemned or disposed of under the threat of condemnation or the lender forecloses on the mortgage.
You repay the credit by including it as additional tax on the return for the year the home stops being your main home. Complete parts III or IV of Form 5405 and attach the form to your Form 1040. Include the repayment on Form 1040, line 60. On the dotted line to the left of line 60, enter the amount repayment and “FTHCR.”
Source: IRS.gov Publication 17