Updated Nov. 6, 2009, to reflect new legislation — more to be added soon

New Legislation

New legislation, the Worker, Homeownership and Business Assistance Act of 2009, which was signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts. The new law:

• Extends deadlines for purchasing and closing on a home.
• Authorizes the credit for long-time homeowners buying a replacement principal residence.
• Raises the income limitations for homeowners claiming the credit. 
  
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***Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.  

***For the first time, long-time homeowners who buy a replacement principal residence may also claim a homebuyer credit of up to $6,500 (up to $3,250 for a married individual filing separately). They must have lived  in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased.

People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after Nov. 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before Nov. 6, 2009.

General Information

Homebuyers who purchased a home in 2008 or 2009 may be able to take advantage of the first-time homebuyer credit. The credit:

• Applies only to homes used as a taxpayer's principal residence.
• Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

The credit is claimed using Form 5405, which you file with your original or amended tax return.

For 2008 Home Purchases

The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.

For 2009 Home Purchases

The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1.

For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer's main residence within a three-year period following the purchase.

First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return. News release 2009-27 has more information on these options.

Duplex home buyer credit purchase as primary residence

 Yes, you can qualify for the home buyer credit under a pretty good deal, there are some minor restrictions.  According to the IRS, if a first time home buyer who otherwise qualifies for the tax credit purchases a duplex, then he or she is entitled to a tax credit equal to 10% of the purchase price allocated towards the unit the buyer will be occupying as primary residence.   Let's do the math now...  Let's take the average Austin duplex cost of around 150k.  The side you occupy is therefore "worth" $75,000, or half the value of the total property.  The IRS says that you can only get 10% of the value of the side you occupy, so that's 10% of $75,000 = $7500 credit.  There is still a maximum credit of $8,000.  For once the math is EASY to do something that is incredibly valuable to your future!!!!  If you buy and occupy a duplex that is less than say 130,000, then you can't use the whole credit, but still, it's a great deal!  Remember, for home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer's main residence within a three-year period following the purchase.

Questions and Answers

More information is available in the question and answer section.

Related Items

• IR-2009-83, First-Time Homebuyer Credit Provides Tax Benefits to 1.4 Million Families to Date
• The American Recovery and Reinvestment Act of 2009: Information Center