First-Time Homebuyer Credit: Questions and Answers, IRS Web Site
IRS has posted a number of questions and answers on the first-time homebuyer credit on its web site. They are grouped into four categories: basic information; homes purchased in 2008; homes purchased in 2009; and scenarios. The following is what those Q&As have to say about the homes purchased in 2008 & 2009 and the scenarios categories. I found the scenarios category to be extremely helpful if nothing else please take a look at that section.
Homes Purchased in 2008
How the credit is repaid. The credit will be recaptured on Form 1040 as additional tax and is repaid in 15 equal annual installments beginning in the second tax year after the year in which the credit is claimed.
When credit is paid back. For homes purchased in 2008, the credit is similar to a 15-year interest-free loan. The taxpayer must begin repaying the loan the second year after claiming the credit. It is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. For example, if a taxpayer properly claims the maximum available credit of $7,500 on his 2008 federal tax return, he must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his 2010 federal tax return. Normally, $500 will be due each year from 2010 to 2024.
IRS knowledge of sale. IRS will know if someone sells his residence before the 15 years are up through both self reporting and third-party information.
Homes Purchased in 2009
Claiming higher credit for an early purchase. A taxpayer who bought his home in 2009 (early) and filed his 2008 tax return claiming the $7,500 first-time homebuyer credit that has to be repaid can claim the $8,000 credit that doesn’t have to be repaid by filing an amended return.
No advance claim for the credit. A taxpayer who is in the process of buying a home and expects to close the deal before Dec. 1, 2009 may not claim the credit in anticipation of a purchase that has yet to happen. Until the taxpayer has finalized the purchase, which for most purchasers occurs at the time of the closing, he does not qualify for the credit.
A taxpayer whose 2009 qualifying home purchase will be completed after the Apr. 15, 2009 due date for filing the 2008 return should considering getting an automatic six-month filing extension if he would otherwise have to pay tax by the Apr. 15 due date and he is virtually certain to complete the purchase within the extended due date. The credit will be available to offset the tax he otherwise would have had to pay by the regular due date. If the credit won’t be sufficient to completely offset the tax, he will have to pay the shortfall with his extension request. This approach should not be undertaken if the home purchase could fall through.
Paying credit back. Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009. The obligation to repay the credit on a home purchased in 2009 arises only if the home ceases to be the taxpayer’s principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being the taxpayer’s principal residence.
Impact of later marriage. Eligibility for the credit is determined on the date of purchase. If Taxpayer A, a first-time homebuyer, buys a house and then later that year marries Taxpayer B, not a first-time homebuyer, the credit is allowable to Taxpayer A.
Cosigner on mortgage. Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A’s primary residence.
Former residence rented out. A taxpayer owned her principal residence. Several years ago, she decided to relocate to a rented apartment, but did not sell the former residence. Instead, she rented it out to tenants. Now the taxpayer plans to buy another house and make it her new principal residence. She qualifies for the credit. A taxpayer who owned rental property within the past three years is still eligible for the credit. The taxpayer cannot have owned and used a home as his or her principal residence within the last three years.
This is a very pro-taxpayer interpretation. It may help taxpayers to qualify for the credit, where due to the tough real estate market in many locations in the past few years, they could not sell and rented out their residence after moving to a rental in a new location. The opportunity of a potential purchaser to qualify for the credit, coupled with today’s low interest rates, may help spur a sale of their former residence and put them in a position to qualify for a credit if they should decide to purchase a home in their new location.
One spouse owns. A husband and wife wanted to sell the home that the wife owned when they got married. The husband had not owned a home. He cannot qualify as a first-time homebuyer. The purchase date determines whether a taxpayer is a first-time homebuyer. Since the wife had an ownership interest in a principal residence within the prior three years, neither taxpayer may take the first-time homebuyer credit. Code Sec. 36(c)(1) requires that the taxpayer and the taxpayer’s spouse not have an ownership interest in a principal residence within the prior three years from the date of purchase. The husband may not take the credit even if he filed on a separate return.