After years of being artificially propped up by subprime mortgages and easy access to credit, the real estate market began a steep decline in 2006. Housing prices tumbled as foreclosures soared. Compounding the problem were droves of individuals and investors who swooped in to snatch up good deals only to find that they couldn’t sell their existing properties.
With housing inventory numbers reaching record levels, the federal government enacted an $8,000 first-time homebuyer credit in an effort to encourage real estate sales. The credit was created as a provision of the American Recovery and Reinvestment Act of 2009, commonly referred to as the stimulus bill.
Although originally scheduled to expire on December 1, 2009, the Worker, Homeownership and Business Assistance Act of 2009 extended and expanded the tax credit. In addition to allowing first-time homebuyers extra time to buy a house, it also created a $6,500 tax credit for long-time resident homebuyers.
Filing Requirements for 2009 Tax Credits
For individuals wishing to claim the credit, here is some important information to consider:
- To claim the credit, the home must be purchased by April 30, 2010. Alternately, new homebuyers can enter into a binding contract to purchase the house by April 30, 2010 and then close on the property before June 30, 2010.
- Only home purchases in the United States are eligible for the homebuyer credit.
- First-time homebuyers are defined as individuals who have not owned a home – either separately or jointly with someone else – in the past three years.
- Long-time resident homebuyers are defined as individuals who have lived in the same residence for five consecutive years of an eight year period.
- The credit is 10% of the home’s purchase price with a maximum of an $8,000 tax credit for first-time homebuyers and a $6,500 tax credit for long-time resident homebuyers.
- Because of paperwork requirements, individuals claiming the credit can not file their tax return electronically. A paper return must be mailed.
- The credit may be claimed using IRS Form 5405. Homebuyers must attach a copy of a properly executed settlement statement or certificate of occupancy. For homebuyers purchasing a mobile home, the retail sales contract may be submitted.
- Long-time resident homebuyers should also include documentation to demonstrate that they lived in the residence for a five year consecutive period. This documentation could include Forms 1098, mortgage statements, property tax records or copies of homeowners insurance.
The tax credit is refundable which means taxpayers will receive refund checks for the credit amount minus any tax they owe to the federal government. For homes purchased before November 6, 2009, the credit is phased out for married couples earning more than $150,000 a year or individuals earning $75,000. The income limits are higher for home sales after November 6, 2009. The credit for these purchases phases out at incomes of $225,000 for couples and $125,000 for individuals.
Maryalene LaPonsie - Maryalene LaPonsie has been writing professionally for nearly 15 years on topics including religion and politics, education and ...
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