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How to Claim the First-Time Homebuyer Tax Credit

Written by Nickel - 352 Comments

Are you eligible for the new $8,000 first-time homebuyer tax credit? Wondering how to claim it? Well, you’ve come to the right place. Earlier today, a sharp-eyed reader named Sonny pointed out that the IRS just issued a revision to Form 5405 yesterday. This form, title “First-Time Homebuyer Credit” walks you through the process of claiming your credit.

In hopes of answering a few FAQs, here are some tidbits from the instructions:

Who Can Claim the Credit

In general, you can claim this credit if you purchased you main home located in the United States after April 8, 2008, and before December 1, 2009 and you (and/or your spouse if you are married) did not own any other main home during the 3-year period ending on the date of purchase. If you build a home, you are assumed to have purchased it on the first day that you occupied it.


Who Cannot Claim the Credit

You cannot claim the credit if your modified adjusted gross income (MAGI) is $95k or more ($170k or more for married filing jointly). You are also excluded if you are a non-resident alien, your home is located outside the United States, you acquired the home gift or inheritance, or you purchased it from a related person. There are also a few other somewhat esoteric exclusion, so be sure to read the form carefully.

Details of the Credit

For homes purchased in 2008… The credit will still be little more than an interest-free loan which will have to be paid back in 15 equal installments starting in 2010. If your home ceases to be your main home before the 15 years is up, you’ll have to pay back the balance in the year in which you move.

For homes purchased in 2009… The repayment requirement is waived as long as it’s your main home for the 36 month period beginning on the purchase date. If your home ceases to be your main home within that 36 month period, you’ll have to pay back the credit in the year in which that happens. There are some exceptions, so be sure to read the instructions carefully.

The amount of the credit is the smaller of $7500 ($8000 for homes purchased in 2009) or 10% of the purchase price of the home. You get the full amount if your MAGI is less than $75k ($150k for married filing jointly). The credit is gradually phased out from $75k-$95k ($150k-$170k for married filing jointly).

What This Means for You

If you’re using a tax pro, make sure they’re up to speed on these changes. They should be, but you can never be too careful. If you’re using tax prep software such as TurboTax or TaxCut, be sure to download any updates (the online versions should be automatically updated). If you do your taxes by hand, be sure to download and use the latest version of IRS Form 5405.

Published on February 20th, 2009
Modified on December 18th, 2009 - 352 Comments
Filed under: Economy, Real Estate, Taxes

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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352 Responses to “How to Claim the First-Time Homebuyer Tax Credit”

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  1. 1
    Rhiannon Says:

    DH and I closed on our house on April 2nd, 2008, thus missing out on the 1st-time homebuyer tax credit by SIX DAYS! Needless to say, we’re annoyed.

  2. 2
    Kelly Says:

    Thanks for posting this! I am claiming my $8000 this weekend!

  3. 3
    n double l Says:

    Can you clarify for me? For 2008 buyers, its only 7500$?
    Does anyone have any idea why they didnt amend the 2008 requirement to repay. seems like a redundant attempt to stimulate but a big screw you to the folks who bought last yr

  4. 4
    nickel Says:

    n double l: Not much to clarify here. It’s exactly what I stated above (I took the info from the IRS). I’m guessing that they didn’t amend the 2008 requirement because those people have already bought. It’s not a “big screw you”, but rather a calculated expenditure of money. You already bought, so there’s no point in rewarding you. This is intended to get people who *haven’t* bought to go out and do so. I’m not saying it’s fair, just explaining why it’s not backdated to 2008. Of course, that begs the question of why they bothered to extend it back to Jan 1 (instead of making it effective upon signing) as the same argument holds for people who already bought in early 2009.

  5. 5
    N double l Says:

    I get that. Hopefully I don’t have to be where I am for more than 6 or 7 yrs. Job is stable and I’m earning 5% on the 7500$ in my checking acct . I have some other questions I’d like to ask. I’ll send in an email maybe u or some of ur readers have some ideas what to do to maximize my profits

  6. 6
    Eu Says:

    Can I claim this credit now for my 2008 return though I haven’t bought a house yet but will within 6 months from now? My situation now would allow me to recieve the full amount though next year I will have earned too much to qualify.
    Thanks,RJ

  7. 7
    david Says:

    In response to #6

    You can not claim the credit NOW since you have NOT purchased a house. If you do purchase a house in 2009 you can qualify based upon your 2008 earnings. I believe you also would be able to amend your 2008 return to get the money prior to filing your 2009 return

  8. 8
    thomas Says:

    The purpose is to get people to buy houses in a recession, yet the recession has been here for some time now. Lots of people not able to take advantage of these programs.

    Still think they shouldn’t have done either of these. Now that you get $8k free, what is to stop you from once again buying too much house or instead of investing back into the home and/or other positive things? This will probably just go to buying things they probably a)don’t need b)can’t afford.

    oh well, just another day.

  9. 9
    Mike Says:

    Any advice is appreciated -

    I owned a condo in Dallas from 2003 until April 25, 2006.

    My dad and I are on the contract.

    I got married January 14, 2006 and we moved to an apartment on Feb 11, 2006.

    My condo closed on April 25, 2006.

    My wife and I have rented from February 2006 until next month (March 2009) when we close on a home on March 5, 2009.

    Since I was out of my condo in February but it did not sell until April – is it not considered a “Main Home” from the date we moved out until the date it sold?

    Can we claim this tax credit?

    Who would know?

    Thanks

  10. 10
    Mark Says:

    If I by a Fixer upper house for $40,000 and I put another $40,000 into it, will i get the full $8,000 credit? Or is it just 10 % of the initial purchase value?

    Thanks

  11. 11
    Cornell Says:

    My first home and I purchase a rent to own home and my down payment is 6500. Can I get a tax credit for this?

    Thanks,

  12. 12
    Robert Says:

    Is this tax credit refundable? If I have zero federal income tax liability, will I receive a check for 8000 dollars? Or do I actually need 8000 in tax liability to get the full amount? Thanks.

  13. 13
    Tom Says:

    @Mark

    As far as I can tell from the 5405 instructions, it is only the 10% on the purchase price.

    @Robert

    Yes, it is refundable.

    Now for my question: I want use Free File Fillable Forms (free e-filing) for my return, and I have everything filled in. However, the 5405 hasn’t been updated. Should I
    A) Wait however long it takes to for them to update the form
    B) Just fill in $8000 on the old form and hope the IRS accepts it
    C) Just print out the forms with the new 5405 and mail everything in instead.

    Any input would be appreciated.

  14. 14
    Lee Says:

    Can I apply for the $8,000 credit now if I have a house under contract (earnest money contract)? Closing is to take place in approximately 25 days.

  15. 15
    Indiecn Says:

    And following the logic of #14:
    I am in contract to buy property A, filed for the $8000 based on the address of property A. Got the money, but the deal fell thru.

    Instead, I ended up buying property B (different address) before Dec 1, 2009. Do I have to fill out any additional forms to correct the address? Ie. How do they track that I own the property for at least 3 yrs?

  16. 16
    Carye Says:

    The IRS has amended the tax form but I am being told the credit has not actually been implemented yet. I am very frustrated…..using a tax professional office for the first time and they do not even know what is going on
    apparently.

  17. 17
    Mary Says:

    My son used 1040EZ form for federal. He bought a home on 1/23/09. He wants to file an amended form for the $8,000 credit. Does he have to file a 1040 amended form instead of an amended 1040 EZ form to get the credit. If he can use the 1040 EZ form, on what line does the credit go?

    Thanks

  18. 18
    Cameron Says:

    The question below is from federalhousingtaxcredit.com in the FAQs section.

    What types of homes will qualify for the tax credit?
    Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

    From my understanding, under the definition of the principal residence under the capital gain tax exclusion, I could buy and house and rent it out for a year or two, live in it for 3 years after renting it, and I’d still be eligible. So, say out of 5 years, I rented it for 2 years, lived in it for 3 years … or out of 4 years, rented it for one year, lived in it for 3 years, would I have to pay back the tax credit?

    Read the Washington post article I linked. It explains the definition of “principal residence” under capital gain tax exclusion.

    Hopefully that’s not too confusing, but I’d appreciate some feedback. I know in the explanation on this site it said, “36 months beginning from the date of purchase”, but according to the Washington Times article, this wouldn’t be correct.

  19. 19
    Tim Says:

    I’m curious about Lee’s Question “Can I apply for the $8,000 credit now if I have a house under contract (earnest money contract)? Closing is to take place in approximately 25 days.”

    I’m in the same situation. Anyone know?

  20. 20
    Julie Says:

    I closed on my first house Dec 17, 2008 (wanted to move in over Christmas)…wish I would have waited another week or so to get the “true” tax credit. I understand that its meant to provoke future buyers, but it would also be good to ensure that ones that just purchased stay afloat. Do you think there is “any” chance that they’ll amend it and have it accept all new purchases since April 8, 2008? Also, if filing “married filing separate”, do both spouses have to claim the credit? The loan/title is in my name only, thus my husband doesn’t want to claim anything on his return for 2008. Is this possible?

  21. 21
    rick Says:

    I have the same question as others. We Recently went under contract on Monday. I know that we qualify for the rebate, but the question is can we use this money at time of colosing towards our down payment or do we have to recieve it next year on our taxes or even this year if we are one of those who have not done there taxes this year. Wondering how to move my money around in order to close without any problems in the next 30.

  22. 22
    KZM Says:

    KZM asks: “I am self-employed and have not filed for quarterly taxes (just completed first year as BizOwnr). I am pre-qual’d FHA. I owe about 5k in taxes, if I filed for an extension, would I be extending my need to pay those taxes and still have a completed tax return to show my lender or would I need to pay my tax liability first, then close on a house and receive the tax credit.

    My idea is that if I can not pay the taxes, but still show the returns to the lender, then take the credit at close, I will have ZERO tax liability, and I can take the money I’ve escrowed for taxes and put to reduce debts and reduce debt-to-income ratio, thus affording me MORE HOUSE. What I qualify for right now is slightly less than what I am looking for / need.

    THANKS”

    ANY HELP PLZ ???

  23. 23
    Daniel Says:

    I will be making $80,000-$85,000 this year.

    Does anyone know what the sliding scale is exactly? How much less do I get if I am making $80,000 or $85,000 versus someone making <$75,000.

  24. 24
    Chris Says:

    Great coverage of this credit…it has been very helpful. One thing I have not been able to find is any commentary on filing an extension so one can buy a home in May for instance and still claim it on their 2008 tax return… My wife and I are in this situation (working through a short sale) and do not expect to close until the late April to May time frame. I am assuming I can file an extension and simply make the claim once we close…any input on this?

  25. 25
    Wander Says:

    If I recieve this 8000$ credit will I get my normal tax return this year. Also will I be able to recieve it if I rent a bedroom out in the house I buy. It would still be considered my primary residents so it wouldn’t be a rental property.

  26. 26
    Jason Says:

    Chris,
    Do you owe taxes or will you be getting a refund (before the$8,000 credit)? We’re in the same situation as you, so we filed our taxes, and received our refund already to help with closing costs, etc. I have an amendment all filled out along with the form 5405, so as soon as we close, I’ll send that in for the other $8,000 credit. If you owe money, then I would guess the extension would be the better route…

  27. 27
    KZM Says:

    Chris + Jason, >> >> ??

    I owe money on 2008 taxes (about 5k) but have not found a house to buy yet.

    A) If I file an extension and buy a home before July 1, I can get the $7,500 2008 tax credit PLUS the 2009 tax credit all received this year?

    B) This money will be received as credit BEFORE closing? How does that work? What happens if I don’t close? Pay it back?

    C) In order to close on a property, can I have simply filed my taxes but not have paid yet. Can you file your taxes and just get extension on paying the money you owe IRS? I am 24 and this is my first year as self-employed so sorry for the green questions people . . .

    KZM

  28. 28
    Kristy Says:

    We will be putting a contract on a house in the next week or so. Does anyone know the month you have to close by in order to ammend your ‘08 taxes? I heard April or June but no one knows for sure.

  29. 29
    Chris Says:

    Jason – Thanks for the reply…that is agreat thought (we will be receiving money) and I am not sure why it didn’t even cross my mind to go with an amendment. Thanks for the input!

  30. 30
    Erica Says:

    To LEE, TIM, and RICK: We have not yet closed on the house we are building, but have a purchase sale agreement and paid our earnest money. We filed for the first-time homebuyers credit by filling out the form with our future home’s address and the approximate closing date (we don’t know the absolute date since we’re building). We received the money with the rest of our refund and will now use it toward the down payment/closing costs. Hope this helps!

  31. 31
    Erica Says:

    To KZM:

    A) You will not get the $7,500 2008 tax credit, if you buy a house between Jan. 1, 2009 and Dec. 31, 2009, you will only get the $8000 tax credit (which is better anyway)

    B) You have to know the address and closing date of the house you are purchasing in order to fill out the form. Which means, if you have a purchase sales agreement, but have not yet closed, yes you can get the money before closing if you’re timing is right. If you aren’t buying a house yet (don’t have an address or closing date to include in the form) then you won’t be able to complete the form and get the credit. It sounds like you should file an amended form for the first-time homebuyers credit later in the year (when you buy a house) and just do your 1040 now.

    Sorry, I don’t know the answer to your question C.

  32. 32
    Erica Says:

    I forgot to say above that you also have to know the purchase price of the home when filing for the first-time homebuyers credit. So, as I said before, you have to be close enough to closing that you have all of this information in order to file for the credit. Otherwise, you have to file an amended form later.

  33. 33
    Joanne Says:

    Question, we built a home in 2008. We paid cash and did not get a mortgage. I would be willing to get a mortgage to be able to receive the $8000.00 tax credit. Will my mortgage paperwork work as a purchase date?

  34. 34
    Meg Says:

    We are buying a home this year in 2009. We have already claimed the $7500 tax credit. As far as I understand the repayment of this is amended “automatically” right? Or do we have to file an amended 1040? We’ve already recieved the funds and don’t really know what to do at this point. I haven’t filed my taxes yet and am second on the mortgage (we’re not married yet so we’re filing single) can I just claim the other $500 on my return? Or will we need to file an amended 2008 return altogether? How does that work?

  35. 35
    Erica Says:

    Joanne,
    You said you built a home in 2008, when in 2008 was the move-in date? This will determine whether or not you are eligible for the $7,500 tax credit. But unless the house wasn’t done until 2009, you cannot get the $8,000. It shouldn’t matter if you had a mortgage or not. For building a home, the purchase date is considered the date you moved in.

  36. 36
    Erica Says:

    Meg,
    I am currently looking into this as I am in the same position. I believe you will need to file an amended return, but as soon as I find out for sure, I will post again.

  37. 37
    Paul Says:

    Erica/Meg,

    I also filed for and recieved the $7500 tax credit but do not close until March 11. As you stated I was able to do so because I knew the closing date and purchase price and was willing to take the risk. Now, I am wondering what to do about the $8000 payback-free credit that technically I’m elligible for. I’m guessing an amendment is all that is needed. I’m looking forward to your research and answer Erica.

  38. 38
    Joanne Says:

    We moved into the house June 28, 2009. How difficult is it to file an amended return? As I understand it, the $7500 has to be paid back $500 per year for 15 years. Any chance the current administration will forgive these loans?

  39. 39
    Erica Says:

    Joanne,
    I am going to assume you meant June 28, 2008, not 2009. Either way, it is not difficult at all to file an amended return. Visit the IRS website page “Amended Returns” for more information: http://www.irs.gov/taxtopics/tc308.html. Along with the 1040X form, you will also need to file form 5405 (http://www.irs.gov/pub/irs-pdf/f5405.pdf). Hopefully these links work. If not, this information is all available on the IRS website.

  40. 40
    jennifer Says:

    Is the 2009 $8,000 a tax credit or a refund? Last year we owed $1,000 in taxes, we just bought a house in 2009 and plan to use the new $8,000 credit..does this mean we will actually be getting a check for $7,000 ($8,000 minus the $1,000 we probably owe)?

  41. 41
    Erica Says:

    Two things:
    One thing I forgot to address is that yes, Joanne, the $7,500 will have to be paid back over 15 years (the new 2009 $8,000 does not though). You can fill out a new W4 from your employer that asks to have an additional $21 per paycheck (if you get paid twice a month for example) withheld. Just divide the $500 by however many paychecks you get a year. If you bought the house with a spouse and filed jointly, you can each have half of that withheld. You don’t actually have to start doing this until 2010 though; however, I’m not sure why you would wait.
    Second, this is for Jennifer, you are correct. If you owe $1,000 you will get $7,000, none of which you will have to pay back.

  42. 42
    Joanne Says:

    Erica, your the best! Mr. Obama just gave us a $13 a week tax cut, I could give back $10 of it and still be ahead of the game with $7500 in the bank. As long as the paychecks keep coming. Not necessarily a sure thing these days.

  43. 43
    Erica Says:

    I should probably be clear in all of this by making sure everyone understands that these amounts are UP TO $7,500 for 08 and $8,000 for 09. As long as you purchased your house for more than $75,000 in 08 and more than $80,000 in 09, you’ll get the full amount. Otherwise, you’ll get 10% of the purchase price, which means if your house was only $40,000 (what part of the country do you live in?! Maybe I need to move there!) then you will only get $4,000. Make sense?

    The unstable economy is exactly why I think it’s smart to start paying back the $7,500 now (instead of waiting until 2010). Who knows if we’ll have jobs by then? At least you know you can spare the $10/week now.

  44. 44
    Bill Says:

    WARNING!

    You can NOT claim the 7,500 or 8,000 credit before you buy the house and move in as your primary residence. If you do, you will be committing TAX FRAUD. Remember, you can always get an extension to file, or claim it in an amended return later in 2008, or claim it in 2009. Please, don’t follow the example of people above – Indiecn, Erica, Meg, Paul.

    If you have made this mistake, take care of this immediately. Don’t wait for Erica to do her “research”. Hopefully, the IRS won’t assess penalties or interest if you pay the money back now. You should seriously consider consulting with an accountant and/or tax attorney. And for god’s sake, stop talking about it. The internet is not anonymous. A whistle blower can get a reward of between 15% to 30% of the collected proceeds under the Tax Relief Act of 2006.

    People, get some real tax advice from professionals. Don’t trust me or anyone here. If a professional screws you at least you have some legal recourse. H&R Block for instance, will pay for interest and penalties that come from their mistakes in filing your return.

    These are large sums of money and the IRS will come calling eventually.

  45. 45
    Bill Says:

    Oops, scratch the part where I said “and move in as your primary residence”. For home buyers, it is only when you bought the house that matters. If you built the house, then what matters is when you move in.

  46. 46
    Bill Says:

    @Erica – Wow, I can’t believe you actually said “if you have a purchase sales agreement, but have not yet closed, yes you can get the money before closing if you’re timing is right.”

    NO, NO, NO. Absolutely not!! Where in the world did you get that crap from? Seriously, did you just make that up? Didn’t you think it was strange there wasn’t a place on the 5405 to put the “future purchase date”? It only had a place for “purchased date” (past tense). The instructions say “Enter the date you acquired the home” not “might acquire the home” or “plan to acquire the home”. Just look where that thinking landed Indiecn. How does he explain how he filled in the wrong date and the wrong address on the 5405? Think that might get flagged?

    Also, the reason someone might wait to pay back the 7500 is because inflation eats away at the money you owe at around 3% a year. According to my math (hope I did it right), you save $360 if you wait 2 years to start repayment (assuming a constant 3% inflation a year for 15 vs 17 years).

    Stop giving out tax advice. You are going to hurt someone.

  47. 47
    Cameron Says:

    Bill,

    I’m assuming you would know the answer to this. If I were to buy a house this year and rent it out for a year (no income…just to pay off the mortgage monthly), would I still be eligible for the tax credit if I LIVED in the house for at least 3 years following. So, for example…say I bought the house next month, rented it out for 12 months, then lived in it for 36 months over a 48 month period? Would that work or do you have to live in it as soon as you buy the house to be eligible? Thank you.

  48. 48
    Chris Says:

    Great Insight.
    I have two questions, I will eventially go to a tax pro, but I wanted to see what others thought:
    1) I filed my taxes online (turbotax) and we are closing on a house in March. Can we send the 5045 manually or go through the websie? (probably something I should ask TurboTax)

    2) is this a flat $8000 refund (or 10%) or if you received, lets say, $1000 back from the government, do you only get an additional $7000? As in, only up to $8000.

    Thanks for any replies

  49. 49
    Chris Says:

    Opps,
    One more thing:
    Is there a minimum down payment that needs to be made in order to get the credit?
    Thanks

  50. 50
    katman2 Says:

    My wife and I are planning to purchase a new house in a couple of months. We are registered as an LLC. Can the LLC receive the tax credit as a first time buyer?

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