In November of last year, President Obama and Congress expanded the home buyer tax credit to cover more people who have purchased houses in 2009 and 2010 and to further stimulate the real estate industry. Earlier this month, the IRS released an updated tax form to include the new rules. If you want to claim the home buyer tax credit, you must file your tax return on paper. You will not be able to electronically file because the IRS requires additional documentation.
Here is what you need to know in order to receive the full tax credit offered by the government.
How to qualify for the home buyer tax credit
Both first-time home buyers and long-time owners can qualify for a credit. A first-time home buyer for the purposes of the credit is someone who has not owned a home (or whose spouse who has not owned a home) during the three-year period that ends on the date of purchase of the new home. If the house was purchased on November 30, 2009, to qualify you must not have owned a home since December 1, 2006. The earliest date to qualify for this credit is January 1, 2009.
To qualify for the credit given to long-time home owners, you must have owned your current home for any five five year period during the eight year period ending on the date of purchase of the new home. The earliest home purchase date to qualify for this credit is November 8, 2009.
For either credit, if your date of purchase is in May or June 2010, you will need to prove you entered into a contract to buy the house before May 2010. Read below to determine what documentation is necessary.
Members of the military and the “intelligence community” have an extra year to purchase a house and qualify for the credit.
Restrictions for qualifying for the credit
Even if you qualify as a first-time home buyer or a long-time home owner and you have purchased a qualifying house within the permitted time frame, you might still not qualify for the credit. You will not qualify if:
- you purchased your house after November 6, 2009, the price of the house may not be more than $800,000
- your modified adjusted gross income is $95,000 ($170,000 if you are married filing jointly) or more and you purchased your house before November 7, 2009. A phase-out of the credit begins with a MAGI of $75,000 (or $150,000)
- your modified adjusted gross income is $145,00 ($245,000 if you are married filing jointly) or more and your purchased your house after November 6, 2009. A phase-out of the credit begins with a MAGI of $125,000 (or $225,000)
- someone else claims you as a dependent on their tax return
- you purchased your house after November 6, 2009, and were under the age of 18 on the date of purchase
- you are a nonresident alien
- your house is located outside the United States
- you sell your home or it ceases to be your main residence before the end of the year in which you purchase it
- you received the house as a gift or inheritance
- you acquired your home from a relative or a related corporation or partnership
The amount of the credit
First-time home buyers qualify for a credit of 10% of the purchase price up to a maximum of $8,000 ($4,000 if married filing separately). Long-time residents qualify for a credit of 10% of the purchase price up to a maximum of $6,500 ($3,250 if married filing separately). As mentioned above, if your modified adjusted gross income is above a certain level, the credit will be phased out until eliminated entirely.
How to claim the tax credit
Because the IRS requires additional documentation, taxpayers who wish to claim the home buyer tax credit must file federal tax returns on paper through the mail. You can, however, still use tax preparation software like H&R Block At Home (formerly TaxCut), TurboTax, and TaxAct to calculate your taxes and complete your return, but you will need to print the paperwork and send it in.
I confirmed this with the TurboTax team:
Yes, TurboTax will stop taxpayers who have claimed the Homebuyers Credit from e-filing and let them know that the IRS requires them to print and mail their return with the appropriate documentation.
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. Alternatively, prepare your taxes online, ensuring your answer questions about your home purchase correctly.
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 — include 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.
Be sure to send copies of these forms, not the originals.
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.
Good luck! Let us know about your experience claiming the tax credit or if you have any questions.
Updated December 27, 2017 and originally published January 23, 2010.