Hello and welcome back to Money Girl's Quick & Dirty Tips for a Richer Life. I'm your host Laura Adams.
In this episode I’ll discuss the new and improved tax credit that’s available for home buyers.
Get an Expanded Tax Break
In show 110 I discussed the New Homebuyer Tax Credit. I mentioned that some changes to this benefit might be coming soon due to proposed legislation. Well, the IRS just announced that they have expanded this tax break for 2009 purchases to incorporate provisions from the American Recovery and Reinvestment Act that was recently signed into law.
New vs. Old Tax Credit
Let’s review the credits so you’re fully up to speed on the differences. The new and improved tax credit is only for home purchases completed from January 1st to December 1st of 2009. The old credit (that I discussed in show 110) now applies to purchases completed from April 9th through December 31st of 2008.
Who Can Take the Credit
To be considered a first-timer for the purposes of either the 2008 or 2009 tax credit, you must not have owned a home for three years prior to your purchase. For example, let’s say you bought a primary residence on January 10th of 2009. If you, and your spouse if you’re married, didn’t own a home after January 10th of 2006, congratulations; you can consider yourself a first time home buyer once again!
However, the credit amount you’ll receive is reduced if your adjusted gross income is more than $75,000, or $150,000 if you’re married filing jointly. You’re not eligible for the credit at all if your adjusted income exceeds $95,000, or $170,000 for joint filers.
Show Me the Tax Money
Qualifying taxpayers who purchase a home from January 1st to December 1st of 2009 can claim 10 percent of the purchase price, up to $8,000, or $4,000 for those married and filing separately. This is $500 more than the credit amount for qualifying purchases in 2008. The new credit isn’t as large as many had hoped it would be, but its terms make it a substantial improvement. This is because the new 2009 credit is a real credit. The eight grand is money that will be refunded to you or used to offset any taxes you owe with no strings attached, as long as you stay in the home for three years.
The 2008 credit is 10 percent of the purchase price up to $7,500. But unfortunately, it must be repaid to the government over a 15-year period, just like an interest-free loan. Be sure to go back and listen to show 110 for more details if your qualifying new home purchase was in 2008.
When You Take the Credit
If your qualifying purchase is in 2009, you have the option to take the credit on either your 2008 or your 2009 tax return. So if you already completed a home purchase this year and have time to include it on your return that’s due on April 15th, that’s great. But don’t worry if you can’t—simply include the credit on your 2009 return that’s due next year.
Another option is to file for an extension on your 2008 return. This doesn’t give you more time to pay a tax liability; it simply gives you an extra six months to file your return. You’ll owe interest on any past due amounts and even penalties for late payments. However, this may be the best strategy to get tax credit funds sooner rather than later if you have an upcoming home purchase that will qualify. Take a look at IRS Form 4868, the extension application, for more details.
How You Claim the Credit
And speaking of tax forms, the IRS published a revised version of Form 5405 to address the new home buyer credit. This form must be filed with your federal tax return to claim the credit. The instructions on this form include information on who can and who can not claim the credit, as well as situations where the credit would have to be repaid. You’ll find links to these documents in the show transcript at moneygirl.quickanddirtytips.com.
Administrative
I’m glad you’re listening. Send your email to money@quickanddirtytips.com.
Chi-Ching, that's all for now, courtesy of Money Girl, your guide to a richer life.
Get Money Girl and other great shows from Quick and Dirty Tips streamed to your iPhone. Download Stitcher free today at stitcher.com.
Additional Resources:
Info on 2008 first-time home purchases
