Are you claiming the home buyer tax credit with your 2009 income tax return? Read these new instructions. The credit has been extended and expanded to qualify for more people, including long-time homeowners. I’ve included some of the basic information below.
Because the IRS requires additional documentation, taxpayers who wish to claim the home buyer tax credit must filing federal tax returns on paper through the mail.
1. Download and complete the revised Form 5405. This form is available here. The form will guide you through the process, ensure you qualify for a credit, and determine the amount of your credit. Here are instructions for completing Form 5405.
2. Collect your required documentation. You will need the Form HUD-1 Settlement Statement or other settlement statement outlining the names and signatures of all parties to the sale, the property address, the price, and the date of purchase. If you do not have a settlement statement, as you might not if you purchase a newly-constructed home, attach your certificate of occupancy.
If you are under contract but have not taken occupancy of the house by the time you file your taxes — and you still qualify under the date restrictions above — included pages from your signed contract including the signatures and names of all parties, the property price, the address, and the contract date.
If you qualify as a long-time homeowner rather than a first-time home buyer, include Form 1098 (Mortgage Interest Statement), property tax records, or homeowners’ insurance records. The forms must cover a full consecutive five year period within the eight years ending on the date of the purchase.
3. Complete your Form 1040. Include your bottom line on Form 5405 on the appropriate line on your income tax return. On the 2009 Form 1040 return, this is line 67. You can’t claim this credit with Form 1040EZ.
4. Double-check your work. Check for the most common mistakes, such as not signing the return or using the wrong Social Security number. Review each form line-by-line and check your calculations. Any mistake will cause a delay.
5. Mail your forms and wait. When people began claiming the first-time home buyer tax credit last year along with an amended 2008 tax return, people were receiving the credit within six weeks. As more people began applying, receiving the credit took longer, particularly if documentation was missing.
Below is the original post explaining how to claim the $8,000 first-time home buyer tax credit when claiming 2008 income. This no longer applies unless you are revising your 2008 income tax return. If you are submitting your 2009 income tax return read this article.
Original article for claiming $8,000 tax credit for first-time home buyer on 2008 income tax returns
Thanks to the American Recovery and Reinvestment Act of 2009, formerly known as the “stimulus bill,” first-time home buyers are eligible for a refundable tax credit of up to $8,000 this year. Here is what you need to know in order to claim the credit.
Who qualifies as a first-time homebuyer? A “first-time homebuyer” is anyone who has not owned a house in the past three years. Furthermore, if you don’t live in the house purchased this year for the three years following the purchase, you will have to pay the credit back to the government. This credit is intended for people who live in their own houses, not house flippers or speculators.
What is a refundable tax credit? When tax professionals and the IRS talk about “refundable tax credits,” they do not mean that you have to pay the credit back to the government. A refundable tax credit means that if you owe less tax than the amount of the tax credit, you will receive a refund — even if you have no other tax liability for 2008. That’s not a bad deal. In other words, if you owe $200 to the government before claiming the credit, and you qualify for $8,000 for the first-time home buyer credit, rather than paying the government, you will receive a check for $7,800. Even if you had no income in 2008, owed no tax, and purchased a qualifying house in 2009, the government will send you a check for $8,000.
What if I bought the house last year? If you purchased a house in 2008 and were a first-time buyer, you qualify for the older refundable tax credit with a maximum of $7,500. This does require that you pay the $7,500 tax credit back over the course of fifteen years, starting two years after the date of the purchase. This is still a good deal. As time goes on, thanks to inflation, you are paying back this “loan” with money that has smaller purchasing power.
To qualify for the new credit with the maximum of $8,000, you must be a first-time home buyer and the sale must take place between January 1, 2009 and November 30, 2009.
Do I qualify for the full $8,000? The actual credit you will receive is 10% of the purchase price of the home or $8,000, whichever amount is lower. If your modified adjusted gross income (MAGI) as a single taxpayer is over $75,000 or if your income as a married couple is over $150,000, your credit will be phased out. The credit will be eliminated if your income is above $95,000 (single) or $170,000 (married).
How do I claim the home buyer tax credit? You can claim this credit when filing either your 2008 or your 2009 income tax return. For example, if you believe that your income level in 2009 will be too high to qualify for the credit but you already know that your 2008 income is low enough to qualify for the full amount of the credit, you can claim the credit on your 2008 income tax return.
Complete IRS Form 5405 to determine the credit amount. Here is the official revised copy of Form 5405 [pdf] that takes the new $8,000 home buyer tax credit into account. Take the bottom line amount on Form 5405 and enter the number on line 69 of your Form 1040. Not all online tax preparation software has been updated to include instructions for this new credit. I checked H&R Block Tax Cut, TaxACT, and TurboTax Online, and as of last night all three include only the rules for last year’s $7,500 credit. You may wish to wait for the software to catch up with the IRS before completing and filing your 2008 income tax return. Or, if you don’t want to wait, you can do your taxes by hand. See new updates at the bottom of this article for TaxACT and TurboTax.
If you have filed your taxes already, you will be required to file an amended income tax return if you want to receive the credit this year with your 2008 refund.
Please keep in mind that I am not a tax professional and none of what is written here or anywhere else on Consumerism Commentary should be considered tax advice. You are solely responsible for your own tax return, and any questions should always be directed to your tax accountant or the IRS.
2:00 pm update: TaxACT has contacted me to let me know that as of today, February 25, their software has been updated to correctly figure the $8,000 first-time home buyer credit. I’ve confirmed that the new calculation is now active.
February 27 update: A representative from Intuit has confirmed that TurboTax has now been updated to include the $8,000 home buyer tax credit and the change should be in effect today. I don’t see it as of 4:00 pm, but I will check again later tonight. Originally TurboTax planned on putting this update into effect as late as March 11.
Here is what a TurboTax representative said: “As with any tax changes, especially those that come very late in the season, we are reliant on the IRS to provide guidance so we can update the product accurately and completely. Once the IRS gave us the correct guidance and requirements, we immediately started working to update.”
Updated March 21, 2011 and originally published February 25, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.