Tax Tips
Tax Credit for New Homebuyers May Get Better
The credit was originally designed as a loan one had to pay back. That may no longer be the case.
By Mary Beth Franklin, Senior Editor, Kiplinger's Personal Finance
February 12, 2009
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If you bought a new home last year -- or are planning to buy one this year -- you may be able to cash in on a juicy new tax break when you file your 2008 federal return
You can claim a tax credit equal to 10% of the purchase price -- up to $7,500 -— if you bought a principal residence after April 8, 2008. (A tax credit, which reduces your tax bill dollar-for-dollar, is more valuable than a tax deduction that merely reduces the amount of your income that is taxed.) To qualify for the tax credit, you (and your spouse if you are married) cannot have owned a home during the previous three years.
Vacation homes and rental properties are not eligible, and you have to meet income requirements. For single taxpayers, the credit decreases as modified adjusted gross income rises above $75,000, and it disappears altogether above $95,000. For example, if your income is $85,000, you could receive a credit worth no more than $3,750. For married couples, the credit starts to decline when your modified adjusted gross income reaches $150,000 and disappears after $170,000.
As currently structured, the new $7,500 tax credit for first-time home buyers is actually a tax-free loan that you must pay back to the government over 15 years -- starting two years after the year the credit is claimed. If you sell the house before the money is paid back, the loan is due in full in the year of the sale.
But Congress has already tinkered with the new law as part of the massive economic stimulus package. First-time home buyers who purchase a home between January 1 and November 30, 2009, can qualify for an $8,000 tax credit and they don't have to repay the credit as long as they remain in their house at least three years. (Those who bought their homes in 2008 still must repay the credit.)
Even if you buy a home this year, you can still claim the tax credit on your 2008 return. Use Form 1040X if you want to amend a 2008 return that you have already filed. Or you can extend your tax-deadline until October 15 by filing Form 4868. (An extension delays the deadline for filing forms but not for any payment you owe.)
Reader Comments (14)
Posted by: Ashley Trailrunner at 02/12/2009 05:11:32 PM
Too bad they're not making the pay-back provision retroactive for those of us filing for the current $7500 tax credit. We bought a house in May 2008 and would be really happy if we didn't have to pay back the funds. If they're changing the provision for some, why not change it for all?
Posted by: Gwen Jackson at 02/13/2009 08:13:26 PM
We are in a similar situation as Ashley...we just bought our new home in December. We aren't first time homebuyers and they covered that in the stimulus plan, but they are leaving out the people that are trying to make responsible money decisions with their purchases even before the stimulus was passed. I emailed both of my Senators to request Congress make this portion of the bill retroactive to the beginning of the major economic downturn....prior to the presidential election. Same goes for what they are doing regarding the automobile purchases. We had to purchase new vehicles (used vehicles) in December as well. As it stands, not much about the new stimulus plan is going to help people like us keep our heads above water.
Posted by: Cindy at 02/18/2009 12:48:26 AM
Yes, I agree! It would be nice if they would go back and amend the tax break for 2008 homebuyers! We bought our home at the end of September!! If we had only waited 3 more months! Top that off, my husband lost his job shortly later and still looking! That break would help us and many others struggling, knowing we don't have to worry how to pay it back later! 2008 New homeowners need just as much help as 2009! Maybe if all 2008 homebuyers wrote in together we can get it amended!
Posted by: Deb at 02/18/2009 06:46:56 AM
If you sell your home before you've repaid the loan, you'll only need to repay the loan to the extent of the gain on the sale of your home. If you have a loss, you won't have to repay the balance of the loan. So, be sure to keep all receipts for improvements you make to your home.
Posted by: Anon at 02/18/2009 07:26:33 PM
I bought a house in June 2008 which is surely worth less than what I paid for it. At first I thought they weren't going to make the change retroactive for 2008 since 2008 tax laws were already in place. Now I see that you can file for the new tax credit on your 2008 taxes. Why would I want a $7,500 loan from the IRS? I'll take it, but it's going straight into my 2008 and 2009 roth ira contributions. If they'd just give us the $8,000 and not make us pay it back, I'd immediately spend every dime of it on big ticket items for my home. I call shenanigans on this credit. Who's up for a class action law suit to make this fair?
Posted by: Lindsay at 02/20/2009 03:22:44 PM
If i already filed my taxes, can I go back and claim the tax credit or is it too late?
Posted by: Tom at 02/23/2009 10:22:53 AM
On November 28th I signed closing papers for my very first home. I know I can claim the 10% on my taxes of what I paid for my home, but what about the $8000 new tax credit? The law kind of confuses me a little seeing how it says with the old credit from Oct 2008 until July 2009 which is a pay back type credit but the new law says Jan 2009 until Nov 2009 this would put some folks in both categories? Here is the kicker for me I purchased for signed on Nov 28 wich is less than 60 days from the new law. My first payment wasn’t until Jan 1 2009, can I qualify for the $8000 new law credit in the stimulus package? Since I already filed can I amend the old credit?
Posted by: Mary Beth Franklin at 02/23/2009 10:25:08 AM
I know it doesn't seem fair, but the law says if you bought a home after April 8, 2008, you qualify for a first-time homebuyer's tax credit of $7,500 that you must pay back in equal installments over 15 years starting with your 2010 tax return. The new stimulus package includes an $8,000 tax credit, that doesn't have to be paid back, but it only applies to homes purchased on or after Jan 1, 2009 through Nov. 30, 2009. So the short answer is no, you can't claim the new $8,000 tax credit. And yes, you have to pay back the $7,500 tax credit that you already claimed on your 2008 tax return. I suppose there is always hope that Congress may decide to level the playing field in the future and make the $7,500 credit payback free, but I wouldn't count on it.
Posted by: EastTexashomeowner at 02/24/2009 02:48:16 PM
I closed on my house on Jan. 5, 2009 and did my taxes a few days before the stimulus package was finalized. My CPA informed us of the loan and we took it. My question is: Can I amend my taxes to get the $8K stimulus that I don't have to repay and pay back the loan as I normally intended? In theory what they want a person to do is spend the cash on fixing up their home and in turn that stimulates the economy right?
Posted by: Natalie at 02/25/2009 02:20:43 PM
I bought a home with my father in July of 2008. I am the primary borrower and he is the co-borrower. My father already owns a home as his primary residence and I know he cannot take advantage of the $7500 tax credit. I was wondering if I could collect the whole amount of $7500 or if I can only collect $3750? I would really appreciate if someone could help me out.
Posted by: Jesse at 03/02/2009 02:03:05 PM
My wife and I bought our first home in March of 08. Are we out of luck on this one? We have no chance of getting this tax credit? Is there any chance this is retroactive?
Posted by: erin at 04/23/2009 04:00:42 PM
Why is it that we have to pay back our $7500.00 credit from 2008, but they don't have to in 2009? Shouldn't they make this credit consistent across the board?
Posted by: Alejandro M Gonzalez at 08/30/2009 02:20:50 PM
My wife and I have filed form 1040X and have not received a $8000 check. Will this happen in year 2009? Will surely appreciate information on this.
Posted by: melody at 11/06/2009 06:00:03 PM
I purchased my home for $178,000 in 2008 and took advantage of the $7500 IRS loan. Now I need to sell my home and was wondering if I sell it for the $178,000 can the $7500 be considered a loss becauase I have to pay a realtor $10,000? Or, should I consider selling the house on my own for $170,500 so I don't have to pay the loan back because of the loss? I figure I might as well give a family a good deal and sell my house under the market value. Thank you for your feedback.