First-Time Homebuyer Tax Credit

Repaying the Federal Tax Credit for First-Time Homebuyers

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Even though the first time homebuyer credit ended in 2010, the tax credit applies to those first time homebuyers who purchased a home in 2008, 2009, or 2010.

People who took the credit on their federal income tax return in 2008 need to repay the tax credit over 15 years beginning with their 2010 tax return. That means they need to make payments until 2025.

Repaying the First-Time Homebuyer Credit

The homebuyer credit is repaid as an additional tax on your federal tax return for fifteen years, starting with your 2010 tax return.

If you received the maximum $7,500 credit, this works out to annual repayments of $500 per year. You could think of this tax credit as an interest-free 15-year loan.

Repay in Full When the House is Sold

The credit will also need to be repaid in full if the taxpayer sells the house within the 15 year repayment period.

Tax Form to Repay the First-Time Homebuyer Credit

Utilize Form 5405 to calculate your repayment of the homebuyer credit.

Review the instructions for how to report the repayment amount on Form 1040.

Historical Summary of the First-Time Homebuyer Credit by Year

  • For 2008: up to $7,500, the credit is paid back over 15 years.
  • For Jan - Nov 2009: up to $8,000, the credit does not need to be paid back.
  • For Dec 2009 - April 2010: up to $8,000 for first-time buyers, the credit does not need to be paid back.
  • For Nov 7, 2009 - April 2010: up to $6,500 for "long-term residents" buying a new home, the credit does not need to be paid back.
  • Until April 30, 2011: homebuyer credit continues to be available for qualified members of the U.S. uniformed services.

Dollar Amounts of the Homebuyer Tax Credit

The tax credit is worth 10% of the purchase price of the home. For 2008, the maximum credit is $7,500 ($3,750 for married couples filing separate returns).

The credit is also limited to the same $7,500 maximum for unmarried persons who purchase a residence together.

For 2009 and 2010, the maximum credit is $8,000 (or $4,000 for married couples filing separately).

Long-term residents purchasing a new home have a lower maximum credit of $6,500, or $3,250 for married couples filing separate returns.

Limit based on Maximum Purchase Price

No tax credit is allowed if the purchase price of the home exceeds $800,000. There's no phase-out or gradual reduction of the credit.

Limit based on Maximum Purchase Price

No tax credit is allowed if the purchase price of the home exceeds $800,000. There's no phase-out or gradual reduction of the credit.

First-Time Homebuyers Defined

For the purpose of this tax credit, a first-time homebuyer is defined as someone who has not owned a primary residence in the three-year period ending on the date of purchasing the home. Married couples are considered first-time buyers if neither spouse has owned a residence in the previous three years.

Long-Term Resident Homebuyers Defined

People who already own a home can qualify for the tax credit if they buy another home. To qualify, individuals needs to have owned and lived in their residence for at least five consecutive years in the eight-year period that ends on the purchase date of the new property.

Extended Deadline for Qualifying Service Members

People serving in the U.S. military, intelligence community or Foreign Service on official extended duty outside of the U.S. have an additional year to qualify for the homebuyer credit.

Limited Time Period for Purchasing a Residence

The credit has a very limited life-span. Individuals will need to purchase a residence after April 9, 2008, and before May 1, 2010. Qualified service members must purchase a residence before May 1, 2011.

What is a Primary Residence?

A primary residence is a residence in which an individual lives most of the time. A primary residence can be a house, condominium, co-operative apartment, houseboat, or mobile home.

Because the tax credit is for people who purchase their primary residence, individuals may qualify for the tax credit even if they own a vacation home or rental property as long as those properties were not their primary residence for at least three years preceding the purchase of their new home.

Income Phase-out Range

The credit is phased out for individuals with modified adjusted gross income between $75,000 and $95,000. For married couples filing a joint return, the phase-out range is $150,000 to $170,000.

Effective Nov 6, 2009, the phase out ranges start at $125,000, or $225,000 for married couples.

To determine if the tax credit is reduced or eliminated by the income phase-out range, individuals will need to determine their modified adjusted gross income.

For the purposes of determining income eligibility for this credit, adjusted gross income is modified by adding back the foreign earned income exclusion; plus any excluded income from Guam, American Samoa, the Northern Mariana Islands, or Puerto Rico.

When to Claim the Credit

The credit is fully refundable. This means taxpayers will be able to obtain an additional federal tax refund of up to $7,500 even if they have no other tax liabilities.