The Federal Government, in an effort to stimulate the economy, enacted a first time home buyer tax credit earlier this year that would give homebuyers up to $8,000 to help offset the costs of purchasing a home. Many REALTORS and homebuyers alike, have asked for the refund to be “given back” during the close of escrow. Since the program is a “tax credit” the money comes back from the government when the new homeowner files their income tax return as opposed to receiving the money at the close of escrow. Escrow officers want their clients to know this ahead of time to help avoid frustration when a buyer thinks they will receive an additional $8000 to help them close their escrow.
To help avoid confusion, here is more information about the tax credit and the form that needs to be filled out in order to apply for the tax credit.
* Applies to purchases that close after April 8, 2008, and before Dec. 1, 2009. (The Senate is on the verge of extending the deadline as of today)
* Applies only to homes used as a taxpayer’s principal residence.
* Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
* Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
* The credit is claimed using Form 5405.
This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.
The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000 or $150,000 for joint filers.
For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.
The IRS has a YouTube video, “The $8000 Tax Credit Explained” and other resources that provide details about the tax credit.
This is not intended as legal or tax advice. To fully understand the tax credit and apply successfully for the refund, please consult a tax professional.
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