The Home Buyer Tax Credit
President Obama signed HR 5623, the Homebuyer Assistance and Improvement Act of 2010, into law on July 2, 2010, extending the closing deadline for buyers who qualified for the federal tax credit. The extension applies only to transactions that have ratified contracts in place as of April 30, 2010 that have not yet closed. The legislation is designed to extend the closing deadline for eligible transactions to September 30, 2010. Extending the tax credit closing deadline will help provide additional stability to real estate markets across the nation.
For existing owners
Existing homeowners were eligible for a tax credit of up to $6,500 ($3,200 for those who are filing separately) if they signed a written, binding contract to purchase by April 30, 2010.
Here are some more details to determine if you can claim the credit:
• You must have owned your home and used it as a principal residence for at least five consecutive years of the previous eight years. (E.g. If you sold a home you owned and lived in for five years two years ago, and have been renting since, you’d still be eligible for the credit.)
• As long as there is a written, binding contract to purchase that is signed before April 30, 2010, you will have until June 30, 2010 to close.
• The income limits to qualify for the full credit are $125,000 for a single person and $225,000 for a married couple. Individuals earning up to $145,000 and married couples earning up to $245,000 are eligible for partial credit.
• The credit cannot be used on homes costing more than $800,000. This is an absolute ceiling.
• Your new house does not need to cost more than your old house for you to be approved for the credit.
Claiming your credit is easy, but you will need to include documentation of the purchase with your tax return and the form for claiming the credit.
To learn more, click here.
For first-time buyers
First-time buyers were able to claim a credit of up to $8,000 if they had a a written, binding contract in place before April 30, 2010, and close the transaction before June 30, 2010.
The income limits to qualify for the full credit are $125,000 for a single person and $225,000 for a married couple. Individuals earning up to $145,000 and married couples earning up to $245,000 are eligible for partial credit.
Here are some additional details about the tax credit first-time buyers should consider:
• “First-time home buyers” are defined as buyers who have not owned a principal residence during the three-year period prior to the purchase. For married couples, both spouses need to fit this requirement to qualify for the tax credit.
• These home buyers can receive a tax credit on their income tax return in the amount of 10% of the cost of a single-family home used as a principal residence, set to a maximum amount of $8,000. The credit is available for any type of home.
• The credit does not have to be repaid.
Instructions on How to Claim the Credit
*Note: Although the home buyer tax credit has expired for buyers signing contracts after April 30, the credit remains in effect an additional year for military personnel and foreign service employees deployed overseas for 90 days or more between January 1, 2009, and April 30, 2010. They can still claim the credit if they sign a contract on or before April 30, 2011, and close on or before June 30, 2011.
Information on Home Buyer Tax Credit
Home Buyer Tax Credit: Q&A
Home Buyer Tax Credit: Scenarios
Claiming the tax credit is easy; you can claim it on your federal income tax return. Complete IRS Form 5405 to determine your tax credit amount, and then claim this amount on Line 69 of form 1040. No other applications are needed. To download the IRS Form 5405 for claiming the tax credit, click here.
Below is guidance issued by the IRS on the documentation necessary for claiming the tax credit.
• A copy of the signed HUD-1 settlement sheet, including the contract sale price and the date of closing. This is to document that the timing of the transaction meets the program's requirements.
• Evidence of long-term ownership and occupancy of the previous house to meet the five-consecutive-years requirement. This can be property tax records, homeowner's insurance records, copies of annual mortgage interest statements filed with federal taxes, or IRS Form 1098 mortgage interest statements for the five-year period.
• For buyers claiming a credit on a newly constructed home, for which a HUD-1 settlement sheet is not available, the IRS will accept a copy of the certificate of occupancy showing the purchasers' names, the property address and the date.
• For buyers of mobile homes who are not able to get a settlement statement, the IRS will accept a copy of the executed retail sales contract showing the property's address, purchase price and date of purchase.
• A fully executed IRS Form 5405 on which taxpayers provide basic information supporting their claim of eligibility, including income and home purchase date.
• A copy of the settlement statement proving that the sale and purchase transactions actually took place. The IRS said the settlement statement should show "all parties' names and signatures, property address, sales price, and date of purchase. Normally this is the properly executed Form HUD-1."
To learn more, read the NJAR® press release, visit REALTOR.org and see a newly released Q & A on the tax credit guidelines issued by the IRS.