Home Buying Tax Credit FAQ

Back in November, I posted the helpful chart from NAR that outlines the changes to the home buyer tax credit that was extended by the Obama administration. And while that’s good, it still doesn’t address all the questions that people have regarding buying a new Louisville home. So I’m going to try and do my best to answer those questions, FAQ-style.

Photo of man handing money to you with an American flag behind

This information is accurate to the best of my knowledge but is not warranted.

Who is eligible to get the housing tax credits?

Previously, the tax credit was only available to first-time homebuyers but now current homeowners may also be eligible.

First-time homebuyers, both single taxpayers and married couples, who have not owned a primary residence in the previous 36 months are eligible for the tax credit.

In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence (such as a second home or investment property) that individual would be eligible.

What are the other requirements for the first-time homebuyers tax credit?

According to the IRS, if any of the following describe their situation, a credit would not be due:

  • They do not use the home as your principal residence.
  • They are a nonresident alien.
  • They sell their home before the end of the year.
  • The property is bought from a blood or close relative. This includes a spouse, parent, grandparent, child or grandchild.
  • They owned a principal residence at any time during the three years prior to the date of purchase of your new home.
  • They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
  • Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)

What are the tax credit amounts?

The tax credit for first-time homebuyers is 10% of the purchase price of the home, with a maximum credit of $8,000.

The tax credit for current homeowners is up to $6,500 for those who have owned and occupied their primary residence for five consecutive years during the last eight years.

Are there income caps for the tax credit?

Single tax filers who earn under $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible.

Joint filers who earn under $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

How does the tax credit work?

A tax credit is a direct reduction in tax liability owed by an individual to the IRS. In the event zero taxes are owed, the IRS will issue a check for the amount of the tax credit.

Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

What is the maximum home purchase price?

Qualifying buyers may purchase a property with a maximum sale price of $800,000.

Can homebuyers claim the tax credit in advance of purchasing a property?

No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a homebuyer claim the tax credit if the property is purchased from a seller with seller financing, even if the seller retains the title?

Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Please confirm with your tax specialist for more details.

Can homebuyers purchase a property from a step-relative and still be eligible for the housing tax credit?

Yes, as long as they are not direct blood relatives.

Can a parent who will not live in the property still co-sign for the mortgage and their child still remain eligible for the tax credit?

Yes, provided the child meets the other requirements for the tax credit.

What are the tax credit deadlines?

In order to qualify, all contracts need to be in effect no later than April 30, 2010, and close no later than June 30, 2010.