If you were one of the millions of people who became homeowners between 2008 and 2010, whether it was your first time or your fifth, your purchase will have a noticeable effect on your taxes. That is not only because of the nice bump that you get when you deduct your mortgage interest and property taxes, but you might also get a nice fat tax benefit!
For many, participation in these programs will have many years of consequences. There are special rules for determining who is eligible, as well as tax reductions available for non-first home buyers, and a special extension for members of the military and federal employees stationed outside the country, which we will discuss below.
First, I will look into what the tax reduction for home buyers is and who qualifies for it based on income requirements. Then I will discuss the specific details and requirements of the Homebuyer’s Tax Credit in 2008 and 2009 before dealing with some special exceptions.
Who is eligible for the start-up discount?
The federal government defined a first home buyer in an odd way – it means everyone who did not have a house in the three years prior to the year in which they bought the house. So if you had a house but sold it in 2004 and then bought another house in 2008 or later, you would in fact qualify as a first home buyer.
You must purchase a single-family home from someone who has nothing to do with you. This can be a detached house or an attached house such as a mansion, an apartment building, manufactured or mobile homes, or even a houseboat, as long as you meet the residence requirements. But multi-family homes such as duplexes or apartment buildings are not eligible.
Only US citizens are eligible for this credit. For homes purchased on November 7, 2009 or later, you must be at least 18 years old, not dependent, and the house must cost $ 800,000 or less. Income restrictions apply depending on your tax return status, and depend on when you purchased the house.
Before November 7, 2009 (based on adjusted adjusted gross income):
- Married filing together: $ 150,000 or less for full credit, completely phased out with $ 170,000
- All other archiving statuses: $ 75,000 or less for full credit, fully phased out with $ 95,000
November 7, 2009 or later (based on adjusted adjusted gross income):
- Married filing together: $ 225,000 or less for full credit, completely phased out with $ 245,000
- All other registration statuses: $ 125,000 or less for full credit, completely reduced by $ 145,000
How large is the available tax credit?
The available tax credit is worth 10% of the purchase price of the house, up to a maximum of $ 7,500 if the house was purchased in 2008, and $ 8,000 if the house was purchased in 2009 or 2010. If you are eligible to participate in the military personnel program, your deadline is extended and you can still receive up to $ 8,000 or 10% of the purchase price, whichever is the smallest amount (from April 2011).
If you have purchased a home with your spouse and a file as a married tax return, each of you can collect up to half of the available tax credit, as long as you are both eligible to buy a home first. If you have bought a house with one or more people who are not your spouse, only one of you is a buyer for the first time. In addition, you can distribute the tax credit to all home buyers, but it does not have to be split or split completely (for example, one person can take all the credit if the other is not eligible due to income restrictions).
The Homebuyer’s Tax Credit 2008 – Specific rules
This credit applied to home purchases where the sale was closed and the title was transferred between 8 April 2008 and 31 December 2008.
If you bought the house in 2008, you must live in the house for a year after the day on which you received the title. If you built the house, your residence permit would last a year after the actual day you moved to the house. If you do not meet these residency requirements, you must repay the full balance.
When do I have to repay the tax credit?
If you have received the $ 7,500 tax credit for purchasing a home in 2008, you will pay back the credit in part or in full. The 2008 tax credit was essentially an interest-free government loan that will be repaid $ 500 a year in the next 15 years. So if you get this credit every year for the next 15 years (starting in 2010 and ending in 2024), you owe an extra $ 500 in tax to pay. Hopefully this will be somewhat offset by your new mortgage deduction.
There are some situations in which your repayment terms can be changed :
- If you have claimed the tax credit using an archiving status, but if you are married together and then died, your estate is not obliged to pay the remainder. However, if you file a marriage application, your spouse must continue the 15-year repayment.
- If you transfer the house to a spouse in a divorce agreement, the spouse will not only receive the house but the reimbursement. He or she must continue where you left off on the repayment schedule.
- If you stop using the house as your principal residence, the rest of the reimbursement you owe is due on your taxes for the year in which you stopped using it. So if you decide to become a landlord and rent out the house in 2011, you have only made one payment (in 2010), so that you owe the rest ($ 7,000) in your taxes for 2011.
- If you sell the house before you have repaid the credit, you must repay the remainder of the credit, but only up to the amount that you have benefited from selling the house. So if you bought your house in 2008 for $ 150,000 and sold it three years later to someone who had no relationship with you in 2011 for $ 155,000, you made a profit of $ 5,000, but at that time you still have a balance of $ 7,000 to repay. Since you only put $ 5,000 on the sale, you only have to pay back $ 5,000 of the credit. If you have sold the house for exactly the same amount that you bought it, or if you have sold it for less, you do not have to repay the credit.