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Bankrate's 2010 Tax Guide
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Homebuyer tax credit extended, expanded

Conversely, if you decide to use the credit claim on your 2010 taxes but then discover it would be better for you to take the $8,000 for the 2009 tax year, you can file an amended return to make the claim.

Definition of 'first-time'

OK, you bought a home within the qualifying dates. You've decided you want to claim the homebuyer tax credit on your 2009 return. Now you must make sure you qualify.

Although the tax break is called the First-time Homebuyer Credit, the tax definition of first-time buyer isn't as straightforward as you might think.

According to the IRS, a first-time buyer is a person who has not owned a primary residence within the past three years. If you and another person buy the house together, each of you must be eligible.

The same rule applies to married couples, meaning each spouse must meet the three-year no-homeownership rule separately. "You cannot get around it by a husband owning a house before marriage and then putting your new home in just the wife's name," says Bob D. Scharin, senior tax analyst from the Tax & Accounting business of Thomson Reuters. "The ownership rule still applies so they're ineligible."

However, owning a vacation home a few years before your new residential purchase is not a problem. The law only stipulates that owning a primary residence in that period disqualifies you for the credit.

A new buyer definition, credit amount

The November 2009 law also included a new homeowner definition, that of a "longtime resident."

These buyers, sometimes also referred to as "move-up" home purchasers, are eligible for a homebuyer tax credit of up to $6,500.

To qualify as a longtime home resident, you must have owned and lived in the same house as your primary residence for at least five consecutive years of the eight-year period before you bought another house. Your newly purchased home also must then become your new principal residence.

Income limit changes

In addition to extending and expanding the credit, the November law also increased the income thresholds so that more buyers might qualify for the homebuyer tax credit.

But that also means you need to be precise as to when you bought your new home.

For homes purchased between Jan. 1, 2009, and Nov. 6, 2009, the full first-time homebuyer tax credit is available to taxpayers with modified adjusted gross income up to $75,000, or $150,000 for joint filers. Those with incomes between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, will get a smaller credit. If your income for your filing status exceeds the top amounts, you aren't eligible for the credit.

Buyers of homes between Nov. 7, 2009, and June 30, 2010, will qualify for the full homebuyer tax credit if their modified adjusted gross incomes is $125,000 or less, or $225,000 or less for joint filers. Those with income between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Higher income earners do not qualify for any credit.

In addition, the credit now has additional qualifications for homes bought on Nov. 7 or later.

  • Dependents are not eligible to claim the homebuyer tax credit.
  • No credit is available if the purchase price of a home is more than $800,000.
  • A purchaser must be at least 18 years of age on the date of purchase.

And regardless of when you bought (or buy) your home, flipping the property will cost you.

Although the $8,000 credit doesn't have to be repaid as did the original tax break, you could be forced to pay back the money if you don't live in your first home long enough.

If you claim the homebuyer tax credit and don't live in the house you purchased as your main home for at least three years, you will have to pay back the credit amount when you file your tax return for the year that you moved out of the property.

Credit e-filing on hold

Filers who use tax preparation software can get an idea of how much claiming the homebuyer tax credit this filing season will help. But these new homeowners won't be able to electronically file their first-home credit claims for a while.

Form 5405, which taxpayers must use to take the first-time home purchase tax break, has been revised to reflect the new purchase dates and $8,000 credit amount.

However, the form has not been formatted and approved by the IRS for e-filing. Don't delay your 2009 return filing waiting for the electronic form. That's not going this filing season.

You can still use the software to complete your taxes and make the credit claim, but you'll have to print out your return paperwork and snail mail the material to the IRS.

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