First-Time Homebuyer
As long as you haven’t owned your primary residence in the last three years, you are considered a first-time homebuyer. If you did own your primary residence, but it was outside the United States, you still qualify. For married couples, each spouse must meet this criterion. For two unmarried individuals purchasing a home, only one need qualify (and that one should claim the credit). The credit is worth 10% of the purchase price, up to a maximum of $8,000.

Long-Time Homeowner
Because of changes to the homebuyer tax credit made in November 2009, long-time homeowners can now qualify for a tax credit as well. Homeowners who have lived in the same home as their principal residence for five consecutive years out of the last eight years can claim a tax credit of $6,500, if they choose to buy another home.

Some married couples are not eligible for the long-time homebuyer credit because the credit only applies to married couples where both spouses have lived in the same house together for five consecutive years out of the last eight years.

Long-time homeowners do not have to sell their current residence to qualify for the credit. They could buy a new home and keep the old home as long as the new home was used as their principal residence. They could then rent out the old home or use it as a second home.

Buy New Construction
Under both programs, as a first-time buyer or long-time owner you do not have to purchase an existing home to qualify for the credit. You can claim the credit on the purchase of a new home, as long as you have signed a legally binding construction contract by April 30, 2010, and occupy the home by June 30, 2010. The date of purchase for a new home is considered to be the date the homebuyer occupies the new home.

Make Sure You Qualify
Whether you’re a first-time homebuyer or long-time homeowner, you’ll have to meet the following criteria to claim the credit.

  • You must be at least 18 and you must not be claimed as a dependent on anyone else’s tax return to qualify for the credit.
  • You can’t purchase the home from a close relative, which the IRS defines as a parent, grandparent, spouse or child.
  • The home’s purchase price cannot be higher than $800,000.
  • Your income can’t be too high. This credit applies to single taxpayers with modified adjusted gross incomes (MAGI) up to $125,000 and married taxpayers with MAGI up to $225,000. Single taxpayers with income between $125,000 and $145,000 and married taxpayers with income between $225,000 and $245,000 are eligible for a reduced credit. (Just because you are in love doesn’t mean that a joint return is best for both of you. Check out Happily Married? File Separately!)
  • Houses, condos, townhomes, co-ops, house trailers and houseboats are eligible as long as they will be used as the buyer’s primary residence. Thus, vacation homes, second homes and investment properties are not eligible for the credit.
  • Some government employees serving overseas, such as members of the armed forces, have an additional year to qualify for the credit.

Claim the Credit
You’ll have to attach form 5405 to your return and you must file a paper return (no e-filing allowed). The IRS also requires you to attach your HUD-1 or other settlement statement (if one of these forms wasn’t involved in your purchase transaction, for mobile homes, a detailed retail sales agreement will suffice, and for new construction, a detailed certificate of occupancy will work). Make sure to sign whichever document you submit if it doesn’t already contain your signature.

Long-time homeowners must also attach their proof of long-term homeownership in the form of five consecutive years’ worth of property tax statements, mortgage interest statements or homeowner’s insurance statements.

For homes purchased in 2010 (before the 2010 deadline), homebuyers can claim the credit on either their 2009 or 2010 tax returns. Someone who purchased a home on April 30, 2010, would not have to wait until 2011 to claim the tax credit on her 2010 tax return; instead, she could file an amended 2009 tax return to get the credit sooner.

Unlike the 2008 tax credit of up to $7,500, which has to be repaid in 15 equal installments starting with the taxpayer’s 2010 tax return, the 2009 and 2010 tax credits do not have to be repaid unless you sell the home within 36 months of purchase. In that case, you would have to repay the entire credit.

Be sure to check with your own specifics with yur tax preparer!

Provided by Susan Reber of Mission Hills Mortgage Bankers.

The good news is that there are both Federal and California Tax Credits available for certain qualifying buyers of homes that meet the requirements.  Note that the Federal and California tax credits are very different from each other, and the methods for claiming the credit are likewise very different.

This summary is provided for general information only and does not apply to any individual situation.  All buyers who are interested in qualifying for either or both of these credits are advised to consult with their own tax advisors.

1.  FEDERAL TAX CREDIT (FIRST-TIME BUYERS ONLY)

Amount:  $8,000 if home purchased in 2009, but no more than 10% of the purchase price of the home (half that amount if married filing separately).  $7,500 if purchased before 2009.

Expires:  December 1, 2009

Only First-Time Homebuyers Can Claim the Credit:  In general, buyers can claim the credit if they are a first-time homebuyer. Buyers are considered a first-time homebuyer if:

  • They purchased their main home after April 8, 2008, and before December 1, 2009.
  • The buyer (and spouse, if married) did not own any other main home during the 3-year period ending on the date of purchase.

Main home. A main home is the one the buyer lives in most of the time. Not limited to new construction.  It can be a house, houseboat, house-trailer, cooperative apartment, condominium, or other type of residence.

The Credit Cannot Be Claimed If:

  • The buyer’s modified adjusted gross income is $95,000 or more ($170,000 or more if married filing jointly).
  • The buyer is a nonresident alien.
  • The home is located outside the United States.
  • The buyer acquired their home by gift or inheritance.
  • The buyer acquired their home from a related person.

No Repayment of Credit:  There is no repayment of this credit if the home is purchased in 2009.  However, the buyer must repay the credit if the home ceases to be their main home within the 36-month period beginning on the purchase date.  (Note:  For homes purchased before 2009, the tax credit is subject to repayment rules.)

2.  CALIFORNIA TAX CREDIT (NEW CONSTRUCTION PURCHASES ONLY)

Amount:  Up to $10,000.  California allows qualified new home buyers a total tax credit amount equal to either five percent of the purchase price or $10,000, whichever is less.

Note:  Taxpayers must apply the total tax credit in equal amounts over three successive taxable years (maximum of $3,333 per year) beginning with the taxable year (2009 or 2010) in which the new home is purchased.  Special rules apply to married/RDP (Registered Domestic Partners) taxpayers filing separately.

Expires:    March 1, 2010.

All Qualified Buyers Can Claim This Credit, Not Just First-Time Home Buyers:  This tax credit is available for qualified buyerswho on or after March 1, 2009, and before March 1, 2010, purchase a qualified principal residence. The buyer must reside in the new home for a minimum of two years immediately following the purchase date.

Qualified Buyer:  A taxpayer who purchases a Qualified Principal Residence that is purchased to be the principal residence of the taxpayer for a minimum of two years, and that is eligible for the homeowner’s exemption (under California Revenue and Taxation Code Section 218).

Qualified Principal Residence – New Construction:  Any of the following can qualify if it is new construction (that is, it has never been occupied), is the buyer’s principal residence, and is subject to property tax, whether real or personal property:  a single family residence, a condominium, a unit in a cooperative project, a houseboat, a manufactured home, or a mobile home.

First-Come, First-Served (or You Snooze, You Lose):  California has allocated $100,000,000 for this tax credit. Buyers must apply for credit allocation from the Franchise Tax Board (“FTB”). Applications will be reviewed and credit allocations will be made on a first-come, first-served basis. Once $100,000,000 has been allocated, the tax credit will no longer be available.

How to apply:   Within one week (seven calendar days) after the close of escrow:

·         The seller must complete Part I of Form 3528-A, Application for New Home Credit, certifying that the home has never been occupied, and provide a copy to the buyer or escrow person.

·         The buyer will complete Parts II & III of Form 3528-A.

·         The escrow person on behalf of the seller and buyer will fax the completed Form 3528-A to FTB at 916.845.9754, and provide a copy to the buyer.

Fax is the only delivery method that will be accepted by, and considered for credit allocation by, FTB, as the date and time stamp on the fax will determine the order in which credits are allocated.

“Time is of the essence” on this one!  

1.  Remember, when the allocated amount of funds ($100,000,000) has been approved for credit by the FTB, there are no more tax credits available.

2.  Also, Buyers only have one week after close of escrow to apply for the credit.

For more information on the California tax credit (and a running total of the amount of credit left to be allocated) go to:  http://www.ftb.ca.gov/individuals/New_Home_Credit.shtml#def2 or call the Franchise Tax Board at:  888.792.4900 (press 5)