$8000 First Time Home Buyer Tax Credit Has Income Restrictions
Added July 23, 2009 by Ilyce R. Glink
Summary: If you are a first time home buyer and want to claim the $8000 first time home buyer tax credit, make sure you meet all the guidelines and restrictions. To qualify for the $8,000 first time home buyer tax credit, it must be your primary residence and you must fall under a certain income limit. You can claim the $8000 first time home buyer tax credit if you make up to $75,000 for individuals, $150,000 filing jointly. The tax credit begins to phase out after that, and is eliminated at $95,000 ($170,000 for joint filing) of income.
Q: I just read your article "Buyers want a second shot at tax credit" in the Chicago Tribune and wanted to clarify one thing.
I am a first-time homebuyer and you said at the end the income restrictions were $95,000 for individuals. I thought the old credit was prorated after $75,000 income. Is this the same way or is the full $8,000 tax credit available up to $95,000 in income?
I will be filing this on my 2009 income taxes so want to make sure I do it correctly. Also, I see you’ve written about the $15,000 tax credit legislation that has been proposed. How realistic do you think it is and do you think it will pass?
Thanks very much.
A: Here’s what you need to know: An individual first-time buyer (or someone who has not owned a home in three years), who has an adjusted gross income of up to $75,000 can qualify for up to the full $8,000 tax credit. The tax credit is structured as 10 percent of the purchase price up to $8,000. Married couples may earn up to $150,000 and qualify for the full amount of the tax credit.
The tax credit begins to phase out over $75,000/$150,000 and phases out completely at $95,000 for individuals and $170,000 for married couples. The IRS has posted a revised version of Form 5405, First-Time Homebuyer Credit, on IRS.gov. The revised form incorporates provisions from the American Recovery and Reinvestment Act of 2009, and the form’s instructions includes additional information on who can and cannot claim the credit, income limitations and under what circumstances the credit must be repaid.
(By the way, the IRS defines your primary residence as your “main home.” You may purchase the following types of property and still qualify for the tax credit: house, cooperative housing unit, condominium, houseboat, house trailer, or other type of housing unit.)
As for the $15,000 tax credit legislation proposed by Sen. Johnny Isakson (R-GA), I don't think it will pass unless the economy takes a sudden turn for the worse, or it becomes clear that the real estate market isn’t finding its legs.
I think we’d have to see real estate sales drop off completely, or watch the official unemployment rate go to 11 or 12 percent nationally before the federal government would push through another home buyer tax credit.
More likely, we’ll see the existing first-time home buyer tax credit deadline extended if home sales don’t pick up by the end of the year. Right now, you have to close on your first home before December 1, 2009. We could see that deadline extended through sometime next year. We might also see the home buyer tax credit expanded to other home buyers, rather than be limited to first-time buyers.
The bottom line is if you’re waiting to buy a house because you think next year you’ll get an even better tax credit, you might miss out altogether.
READ MORE:
For additional discussion on this issue read the following stories:
$8,000 Tax Credit Downpayment Relief: The Treasury Department Giveth and Taketh Away
Completion Date is Key to $8,000 first time home buyer tax credit
Repaying The $8,000 First-Time Home Buyer Tax Credit
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Comments
Rodney says
The writer could have help the questioner out more by further explaining and breaking down of the percentages of the $8000 from $75000 to $95000. Such as $85000 would net 50% and he would get $4000 credit.
Tim says
There is a pent up demand by consumers to spend in America. This is evidenced by the overwhelming success of the “cash for clunkers” program, it’s been so successful that Congress is allocating more. On the other hand, the $8000 First-Time Homebuyers Tax Credit has been a yawner, due to the fact that HUD has added additional regulations that were not the intent of the Stimulus Bill. The “clunker” program has accomplished exactly what Congress intended, reduce inventories, help the manufacturers, stimulate the local economies and inject cash into the local and state revenue shortfalls. It is refreshing to see this success without any additional Federal regulations or roadblocks. The $8000 Tax Credit as it stands, benefits only the wealthy, those home buyers who have a wealthy family member who will lend the $8000 so they can buy a home, be eligible for the credit and repay the loan. What about average Americans who are approved for a FHA mortgage, but don’t have wealthy families to lend the $8000, where do they get the 3.5% required downpayment from? So far the Tax Credit has not reduced inventories, has not helped the local economies and has not added to the local and state revenue shortfalls to any extent, as the Stimulus Bill intended. HUD allows only State Housing Finance Agencies (HFA’s) (there are only 11 states offering this) to lend the 3.5% FHA required down payment against the Tax Credit. The problem is that only 11 states offer any help and all of these states have limited funds for their programs. Where are the Realtors (NAR) and the Builders (NAHB) in this issue, are their members satisfied with the lack of monetization of the Tax Credit for the majority of potential home buyers, the missed opportunities, I would think not? The President also is missing opportunities by the under utilization of the Tax Program. Congress has put forward numerous Bills with regard to the $8000 Tax Credit, Sen. Isakson (R-GA) proposes raising the Credit to $15,000 and Rep. Johnson (D-TX) has a Bill extending the Tax Credit, to name just two. Wouldn’t the average American First-Time Homebuyer be better served if Congress enacts legislation that will specifically authorize and require HUD to recognize that a Tax Credit is an asset? Furthermore that this asset is either eligible to secure a loan under FHA’s existing collateralized loan guidelines or be eligible for purchase by nonprofit agencies in order to monetize the Tax Credit and allow these funds to be used for the required 3.5% down payment. It should be noted that these nonprofits are not parties to the real estate transaction and do not benefit from the transaction.
Stan says
A father and son are buying a primary residence jointly. The son is a first time buyer. Is he eligible for the tax credit?
Ilyce says
@Stan: I believe the son is eligible for at least part of the tax credit, if not all. I've put up more rules above in the story under READ MORE.
John says
Stan: I'm sure a competent real estate attorney can help you with this. Talk to 3 different attorneys just like you would do if you were looking at getting any other type of work done. If all attorney's were right then we wouldn't need attorneys...
David says
Tim, this tax credit is not for the wealthy, they do not qualify by income, if you consider wealthy to be anyone that makes over 75k, sorry my good man, that is the middle of the road for survival. Besides if you do not have the 3.5% to put down for an FHA, you should not be buying a home. This is how we are in this housing mess in the first place.
Carmen Arruda says
Check out this story about the extension of the housing tax credit: http://abclocal.go.com/wabc/story?section=news/politics&id=7087955 If you want to skip it, here's the interesting part (which they do not explain in detail): 1,400,000 homebuyers have taken advantage of the tax credit. The story specifically states that NAR estimates that 350,000 of those wouldn't have purchased without the tax credit, meaning 1,050,000 would still have purchased without the tax credit. This means the total cost of the program breaks down like this: 1,400,000 x 8,000 = $11,200,000,000 (11.2 BILLION) This means the total cost to give the 350,000 people who wouldn't have purchased a home without the tax credit was the 11.2 Billion; which means: 11,200,000,000 / 350,000 = $32,000 per transaction So: It cost $32,000 for each individual who got the $8,000 tax credit, to motivate them to purchase a new home. Wow.
smith says
can I purchase from a relative?