TAX TIP No. 22
Buying your first home is enough of a challenge in good times. In today's economy, it's almost impossible for some people. But Uncle Sam wants to help.
The first-time homebuyer tax credit appeared a couple of years ago. In 2009, lawmakers improved upon the original tax break.
Now the homebuyer tax credit is a true credit. That means it reduces your tax bill dollar-for-dollar and in this case, could get you a refund if your IRS bill is zero.
The credit amount was increased to $8,000.
It's not limited to strictly first-time buyers. Homeowners who've lived in their residences for a while and want to buy another one can get a $6,500 credit.
And the tax break was extended into 2010. While all of these changes make home buying a better option for many, they also have created a lot of confusion.
Improved 2009 creditThe original tax break for first-time buyers wasn't really a credit. It was an interest-free loan of $7,500 that buyers claimed on their returns and then paid back over 15 years, also when they filed their taxes.
That changed when the American Recovery and Reinvestment Act of 2009 became law on Feb. 17, 2009. That bill upped the homebuyer tax credit to a maximum of $8,000 or 10 percent of your home's purchase price, whichever is less.
In this tax tip:
- Improved 2009 credit.
- More time for first-time buyers.
- Definition of 'first-time.'
- A new buyer definition, credit amount.
- Income limit changes.
- Credit e-filing on hold.
It also made the credit a real credit. No payback is required for qualified homebuyers. In most instances, the $8,000 does not have to be repaid.
The change, however, came with an expiration date. Qualifying home purchases had to be made by Nov. 30, 2009.
More time for first-time buyersAs the November deadline approached, Congress got busy. Just weeks before the homebuyer tax credit expired, it was extended.
More notable, the tax benefits of buying a home were expanded to include more taxpayers.
Under the Worker, Homeownership and Business Assistance Act of 2009, signed into law on Nov. 6, 2009, you have until this April 30 to buy or sign a contract to buy a principal residence. You then get two more months, until June 30, to close on the property.
If you're a first-time buyer, you also get the option of claiming the credit on either your 2009 tax return or waiting until you file your 2010 taxes next year.
Claiming the homebuyer tax credit on a 2009 return is a no-brainer for folks who just bought or plan to close on their first home by the April 15 tax-filing deadline and who are short on cash. But run the numbers for both the 2009 and 2010 tax years to make sure which tax year claim will give you the best break.
Remember, too, that if you expect your purchase to be completed by the June deadline, you can file a tax extension request and then claim the credit on your 2009 return when you file it by Oct. 15.