 
Frequently Asked
Questions
About the
First-Time Home Buyer Tax Credit
The Worker, Homeownership, and Business Assistance Act of 2009
has extended the tax credit of up to $8,000 for
qualified first-time home buyers purchasing a
principal residence. The tax credit now applies
to sales occurring on or after January 1, 2009
and on or before April 30, 2010. However, in
cases where a binding sales contract is signed
by April 30, 2010, a home purchase completed by
June 30, 2010 will qualify.
For sales occurring after November 6, 2009, the
Act establishes income limits of $125,000 for
single taxpayers and $225,000 for married
couples filing joint returns.
The income limits for sales occurring on or
after January 1, 2009 and on or before November
6, 2009, are $75,000 for single taxpayers and
$150,000 for married taxpayers filing joint
returns.
The following questions and answers provide
basic information about the tax credit. If you
have more specific questions, we strongly
encourage you to consult a qualified tax advisor
or legal professional about your unique
situation.
1.
Who is eligible to claim the $8,000 tax credit?
2.
What is the definition of a first-time home
buyer?
3.
How is the amount of the tax credit determined?
4.
Are there any income limits for claiming the tax
credit?
5.
The income limits for claiming the tax credit
were raised when the tax credit was extended.
Are the higher income limits retroactive?
6.
What is “modified adjusted gross income”?
7.
If my modified adjusted gross
income (MAGI) is above the limit, do I qualify
for any tax credit?
8.
Can you give me an example of
how the partial tax credit is determined?
9.
How is this home buyer tax credit different from
the tax credit that Congress enacted in early
2009?
10.
How do I claim the tax credit? Do I need to
complete a form or application? Are there
documentation requirements?
11.
What types of homes will qualify for the tax
credit?
12.
I read that the tax credit is "refundable." What
does that mean?
13.
Instead of buying a new home from a home
builder, I hired a contractor to construct a
home on a lot that I already own. Do I still
qualify for the tax credit?
14.
Can I claim the tax credit if I finance the
purchase of my home under a mortgage revenue
bond (MRB) program?
15.
I live in the District of Columbia. Can I claim
both the Washington, D.C. first-time home buyer
credit and this new credit?
16.
I am not a U.S. citizen. Can I claim the tax
credit?
17.
Is a tax credit the same as a tax deduction?
18.
I bought a home in 2008. Do I qualify for this
credit?
19.
Is there any way for a home buyer to access the
money allocable to the credit sooner than
waiting to file their 2009 or 2010 tax return?
20.
HUD is now allowing "monetization" of the tax
credit. What does that mean?
21.
If I’m qualified for the tax credit and buy a
home in 2009 (or 2010), can I apply the tax
credit against my 2008 (or 2009) tax return?
22.
For a home purchase in 2009 or 2010, can I
choose whether to treat the purchase as
occurring in the prior or present year,
depending on in which year my credit amount is
the largest?
1.
Who is eligible to claim the $8,000 tax credit?
First-time home buyers purchasing any kind of
home—new or resale—are eligible for the tax
credit. To qualify for the tax credit, a home
purchase must occur on or after January 1, 2009
and on or before April 30, 2010. For the
purposes of the tax credit, the purchase date is
the date when closing occurs and the title to
the property transfers to the home owner. A
limited exception exists for certain contract
for deed purchases and installment sale
purchases.
See the IRS website for more detail.
However, the law also allows home sales
occurring by June 30, 2010 to qualify, provided
they are due to a binding sales contract in
force on or before April 30, 2010.
Persons who are claimed as dependents by other
taxpayers or who are under age 18 are not
qualified for the tax credit program.
2.
What is the definition of a first-time home buyer?
The law defines “first-time home buyer” as a
buyer who has not owned a principal residence
during the three-year period prior to the
purchase. For married taxpayers, the law tests
the homeownership history of both the home buyer
and his/her spouse.
For example, if you have not owned a home in the
past three years but your spouse has owned a
principal residence, neither you nor your spouse
qualifies for the first-time home buyer tax
credit. However, IRS Notice 2009-12 allows
unmarried joint purchasers to allocate the
credit amount to any buyer who qualifies as a
first-time buyer, such as may occur if a parent
jointly purchases a home with a son or daughter.
Ownership of a vacation home or rental property
not used as a principal residence does not
disqualify a buyer as a first-time home buyer.
3.
How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the
home’s purchase price up to a maximum of $8,000.
4.
Are there any income limits for claiming the tax credit?
Yes. For sales occuring after November 6, 2009,
the income limit for single taxpayers is
$125,000; the limit is $225,000 for married
taxpayers filing a joint return. The tax credit
amount is reduced for buyers with a modified
adjusted gross income (MAGI) of more than
$125,000 for single taxpayers and $225,000 for
married taxpayers filing a joint return. The
phaseout range for the tax credit program is
equal to $20,000. That is, the tax credit amount
is reduced to zero for taxpayers with MAGI of
more than $145,000 (single) or $245,000
(married) and is reduced proportionally for
taxpayers with MAGIs between these amounts.
5.
The income limits for claiming the tax credit were raised
when the tax credit was extended. Are the higher
limits retroactive?
No. The new income limits are only applicable to
purchases occurring after November 6, 2009.
The income limits for sales occuring on or after
January 1, 2009 and on or before November 6,
2009 are $75,000 for single taxpayers and
$150,000 for married couples filing jointly.
6.
What is “modified adjusted gross income”?
Modified adjusted gross income or MAGI is
defined by the IRS. To find it, a taxpayer must
first determine “adjusted gross income” or AGI.
AGI is total income for a year minus certain
deductions (known as “adjustments” or
“above-the-line deductions”), but before
itemized deductions from Schedule A or personal
exemptions are subtracted. On Forms 1040 and
1040A, AGI is the last number on page 1 and
first number on page 2 of the form. For Form
1040-EZ, AGI appears on line 4 (as of 2007).
Note that AGI includes all forms of income
including wages, salaries, interest income,
dividends and capital gains.
To determine modified adjusted gross income
(MAGI), add to AGI certain amounts of
foreign-earned income.
See IRS Form 5405
for more details.
7.
If my modified adjusted gross income (MAGI) is above the
limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial
credits of less than $8,000 are available for
some taxpayers whose MAGI exceeds the phaseout
limits.
8.
Can you give me an example of how the partial tax credit is
determined?
Just as an example, assume that a married couple
has a modified adjusted gross income of
$235,000. The applicable phaseout to qualify for
the tax credit is $225,000, and the couple is
$10,000 over this amount. Dividing $10,000 by
the phaseout range of $20,000 yields 0.5. When
you subtract 0.5 from 1.0, the result is 0.5. To
determine the amount of the partial first-time
home buyer tax credit that is available to this
couple, multiply $8,000 by 0.5. The result is
$4,000.
Here’s another example: assume that an
individual home buyer has a modified adjusted
gross income of $138,000. The buyer’s income
exceeds $125,000 by $13,000. Dividing $13,000 by
the phaseout range of $20,000 yields 0.65. When
you subtract 0.65 from 1.0, the result is 0.35.
Multiplying $8,000 by 0.35 shows that the buyer
is eligible for a partial tax credit of $2,800.
Please remember that these examples are intended
to provide a general idea of how the tax credit
might be applied in different circumstances. You
should always consult your tax advisor for
information relating to your specific
circumstances.
9.
How is this home buyer tax credit different
from the tax credit that Congress enacted in
early 2009?
The tax credit’s income limits were increased,
the documentation requirements were tightened,
and the program's deadlines were extended.
10.
How do I claim the tax credit? Do I need to complete a form
or application? Are there documentation
requirements?
You claim the tax credit on your federal income
tax return. Specifically, home buyers should
complete IRS Form 5405 to determine their tax
credit amount, and then claim this amount on
line 67 of the 1040 income tax form for 2009
returns (line 69 of the 1040 income tax form for
2008 returns). No other applications are
required, and no pre-approval is necessary.
However, you will want to be sure that you
qualify for the credit under the income limits
and first-time home buyer tests. Note that you
cannot claim the credit on Form 5405 for an
intended purchase for some future date; it must
be a completed purchase. Home buyers must attach
a copy of their HUD-1 settlement form (closing
statement) to Form 5405 as proof of the
completed home purchase.
11.
What types of homes will qualify for the tax credit?
Any home that will be used as a principal
residence will qualify for the credit, provided
the home is purchased for a price less than or
equal to $800,000. This includes single-family
detached homes, attached homes like townhouses
and condominiums, manufactured homes (also known
as mobile homes) and houseboats. The definition
of principal residence is identical to the one
used to determine whether you may qualify for
the $250,000 / $500,000 capital gain tax
exclusion for principal residences.
It is important to note that you cannot purchase
a home from, among other family members, your
ancestors (parents, grandparents, etc.), your
lineal descendants (children, grandchildren,
etc.) or your spouse or your spouse’s family
members. Please consult with your tax advisor
for more information.
Also see IRS Form 5405.
12.
I read that the tax credit is “refundable.” What does that
mean?
The fact that the credit is refundable means
that the home buyer credit can be claimed even
if the taxpayer has little or no federal income
tax liability to offset. Typically this involves
the government sending the taxpayer a check for
a portion or even all of the amount of the
refundable tax credit.
For example, if a qualified home buyer expected,
notwithstanding the tax credit, federal income
tax liability of $5,000 and had tax withholding
of $4,000 for the year, then without the tax
credit the taxpayer would owe the IRS $1,000 on
April 15th. Suppose now that the taxpayer
qualified for the $8,000 home buyer tax credit.
As a result, the taxpayer would receive a check
for $7,000 ($8,000 minus the $1,000 owed).
13.
Instead of buying a new home from a home
builder, I hired a contractor to construct a
home on a lot that I already own. Do I still
qualify for the tax credit?
Yes. For the purposes of the home buyer tax
credit, a principal residence that is
constructed by the home owner is treated by the
tax code as having been “purchased” on the date
the owner first occupies the house. In this
situation, the date of first occupancy must be
on or after January 1, 2009 and on or before
April 30, 2010 (or by June 30, 2010, provided a
binding sales contract was in force by April,
30, 2010).
In contrast, for newly-constructed homes bought
from a home builder, eligibility for the tax
credit is determined by the settlement date.
14.
Can I claim the tax credit if I finance
the purchase of my home under a mortgage revenue
bond (MRB) program?
Yes. The tax credit can be combined with an MRB
home buyer program. Note that first-time home
buyers who purchased a home in 2008 may not
claim the tax credit if they are participating
in an MRB program.
15.
I live in the District of Columbia. Can I
claim both the Washington, D.C. first-time home
buyer credit and this new credit?
No. You can claim only one.
16.
I am not a U.S. citizen. Can I claim the
tax credit?
Maybe. Anyone who is not a nonresident alien (as
defined by the IRS), who has not owned a
principal residence in the previous three years
and who meets the income limits test may claim
the tax credit for a qualified home purchase.
The IRS provides a definition of “nonresident
alien” in IRS Publication 519.
17.
Is a tax credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar
reduction in what the taxpayer owes. That means
that a taxpayer who owes $8,000 in income taxes
and who receives an $8,000 tax credit would owe
nothing to the IRS.
A tax deduction is subtracted from the amount of
income that is taxed. Using the same example,
assume the taxpayer is in the 15 percent tax
bracket and owes $8,000 in income taxes. If the
taxpayer receives an $8,000 deduction, the
taxpayer’s tax liability would be reduced by
$1,200 (15 percent of $8,000), or lowered from
$8,000 to $6,800.
18.
I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your first home between
April 9, 2008 and January 1, 2009, you may
qualify for a different tax credit. Please
consult with your tax advisor for more
information.
19.
Is there a way for a home buyer to access the money
allocable to the credit sooner than waiting to
file their 2009 or 2010 tax return?
Yes. Prospective home buyers who believe they
qualify for the tax credit are permitted to
reduce their income tax withholding. Reducing
tax withholding (up to the amount of the credit)
will enable the buyer to accumulate cash by
raising his/her take home pay. This money can
then be applied to the downpayment.
Buyers should adjust their withholding amount on
their W-4 via their employer or through their
quarterly estimated tax payment. IRS Publication
919 contains rules and guidelines for income tax
withholding. Prospective home buyers should note
that if income tax withholding is reduced and
the tax credit qualified purchase does not
occur, then the individual would be liable for
repayment to the IRS of income tax and possible
interest charges and penalties.
In addition, rule changes made as part of the
economic stimulus legislation allow home buyers
to claim the tax credit and participate in a
program financed by tax-exempt bonds. As a
result, some state housing finance agencies have
introduced programs that provide short-term
second mortgage loans that may be used to fund a
downpayment. Prospective home buyers should
check with their state housing finance agency to
see if such a program is available in their
community. To date, 18 state agencies have
announced tax credit assistance programs, and
more are expected to follow suit. The Nebraska
program can be found at
www.nifa.org
20.
HUD is now allowing "monetization" of the
tax credit. What does that mean?
It means that HUD allows buyers using
FHA-insured mortgages to apply their anticipated
tax credit toward their home purchase
immediately rather than waiting until they file
their 2009 or 2010 income taxes to receive a
refund. These funds may be used for certain
downpayment and closing cost expenses.
Under HUD’s guidelines, non-profits and
FHA-approved lenders are allowed to give home
buyers short-term loans of up to $8,000. The
guidelines also allow government agencies, such
as state housing finance agencies, to facilitate
home sales by providing longer term loans
secured by second mortgages.
Housing finance agencies and other government
entities may also issue tax credit loans, which
home buyers may use to satisfy the FHA 3.5
percent downpayment requirement. In addition,
approved FHA lenders can purchase a home buyer’s
anticipated tax credit to pay closing costs and
downpayment costs above the 3.5 percent
downpayment that is required for FHA-insured
homes.
More information about the guidelines is
available on the NAHB web site.
Read the
HUD mortgagee letter (pdf)
and an explanation of the
FHA Mortgagee Letter on Tax Credit Monetization
(pdf).
An FAQ about monetization (pdf) is available at the NAHB web site.
21.
If I’m qualified for the tax credit and buy a home in 2009
(or 2010), can I apply the tax credit against my
2008 (or 2009) tax return?
Yes. The law allows taxpayers to choose
(“elect”) to treat qualified home purchases in
2009 (or 2010) as if the purchase occurred on
December 31, 2008 (or if in 2010, December 31,
2009). This means that the previous year’s
income limit (MAGI) applies and the election
accelerates when the credit can be claimed. A
benefit of this election is that a home buyer in
2009 or 2010 will know their prior year MAGI
with certainty, thereby helping the buyer know
whether the income limit will reduce their
credit amount.
Taxpayers buying a home who wish to claim it on
their prior year tax return, but who have
already submitted their tax return to the IRS,
may file an amended return claiming the tax
credit using Form 1040X. You should consult with
a tax professional to determine how to arrange
this.
22.
For a home purchase in 2009 or 2010, can
I choose whether to treat the purchase as
occurring in the prior or present year,
depending on in which year my credit amount is
the largest?
Yes. If the applicable income phaseout would
reduce your home buyer tax credit amount in the
present year and a larger credit would be
available using the prior year MAGI amounts,
then you can choose the year that yields the
largest credit amount.
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