First Time Homebuyer Tax Credit

You or your tax professional should use IRS Form 5405 to claim the First-Time Homebuyer Credit. The Form 1040X is used for Amendments to previously filed returns. If you purchase an eligible property prior to December 1, 2009, you can file an amendment for 2008 to receive your tax credit sooner than later.

First-Time Homebuyer Credit
For homes purchased in 2008, the credit operates much like an interest-free loan. You generally must replay it over a 15-year period. For homes purchased in 2009, you must repay the credit only if the home ceases to be your main home within the 36-month period beginning on the purchase date.

Who Can Claim the Credit
In general, you can claim the credit if you are a first-time homebuyer. You are considered a first-time homebuyer if:

• You purchased your main home located in the United States after April 8, 2008, and before December 1, 2009.

• You (and your spouse if married) did not own any other main home during the 3-year period ending on the date of purchase.

If you have constructed you main home, you are treated as having purchased it on the date you first occupied it.

Main Home
Your main home is the one you live in most of the time. It can be a house, houseboat, housetrailer, cooperative apartment, condominium, or other type of residence.

Amount of the Credit
Generally, the credit is the smaller of:

• $7,500 ($8,000 If you purchased your home in 2009), but only half of that amount if married filing separately, or
• 10% of the purchase price of the home.You are allowed the full amount for the credit if your modified adjusted gross income (MAGI) is $75,000 or less ($150,000 or less if married filing jointly). The phase-out of the credit begins when your MAGI exceeds $75,000 ($150,000 or less if married filing jointly). The credit is eliminated completely when your MAGI reaches $95,000 ($170,000 if married filing jointly).
  

Repayment of Credit Homes purchased in 2008.
You generally must repay the credit over a 15-year period in 15 equal installments. The repayment period begins in 2010 and you must include the first installment as additional tax on your 2010 tax return.If your home ceases to be your main home before the 15-year period is up, you must include all remaining annual installments as additional tax on the return for the tax year that happens. This includes situations where you sell the home, you convert it to business or rental property, or the home is destroyed, condemned, or disposed of under threat of condemnation.If you and your spouse claim the credit on a joint return, each spouse is treated as having been allowed half of the credit for purposes of repaying the credit.

Example 1. You claimed a $7,500 credit on your 2008 tax return. You must include $500 as additional tax on your 2009 tax return and on each tax return for the next 14 years.

Example 2. You claimed a $7,500 credit on your 2008 tax return. In 2009, you sold the home to your son. You must include $7,500 as additional tax on your 2009 tax return.

Exceptions: The following are some of the exceptions to the repayment rule, please refer to Form 5405 for a complete list.

• If you sell the home to someone who is not related to you, the repayment in the year of the sale is limited to the amount of gain on the sale. When figuring the gain, reduce the adjusted basis of the home by the amount of the credit you did not repay.

• If, as a part of a divorce settlement, the home is transferred to a spouse or former spouse, the spouse who receives the home is responsible for making all subsequent installment payments.

• If you die, any remaining annual installments are not due. If you file a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.

Homes purchased in 2009. You must repay the credit only if the home ceases to be your main home within the 36-month period beginning on the purchase date. This includes situations where you sell the home, you convert it to business or rental property, or the home is destroyed, condemned, or disposed of under threat of additional tax on the return for the year the home ceases to be your main home. If the home continues to be your main home for at least 36 months beginning on the purchase date, you do not have to repay any of the credit. If you and your spouse claim the credit on a joint return, each spouse is treated as having been allowed half of the credit for purposes of repaying the credit.

Exceptions: Many of the same exceptions are the same as those listed for 2008. Please refer to Form 5405 for a complete list.