Ok, so you bought your first home and instead of being freaked out about it being tax time, you're excited. Why? Because you're expecting a big fat refund or reduction of your tax owed by as much as $8,000. 

But what to you have to present to the IRS and what do you have to know to actually collect that bounty you've been looking forward to? As I don't practice law nor have CPA credentials, I reached out to my colleague at the Riverside BNI, Chris Burdo, tax consultant extraordinaire at Ed Muenzner CPA, LLC , to give me the blow by blow so that all of my first time home buyer's and blog readers will have a leg up before they walk into their tax preparation meeting. 

Chris Burdo, Tax Consultant Extraordinaire with Edwin R. Muenzner, CPA, LLC 

Everything you need to know to collect your up to $8,000 tax credit by Chris Burdo

There has been much coverage over the “First-Time Homebuyers Credit but I’d like to review not only the basics of the credit but also go into the finer details that may be of interest from a tax perspective.  It should be noted that this credit originally started out as a loan a couple of years ago and has evolved into the First-Time Homebuyers Credit so my discussion relates to the changes that took effect in November, 2009. Furthermore it should be noted that under the IRS Circular 230 Notice that any tax advice provided in this blog or any attachments cannot be used for the purpose of avoiding penalties that may be imposed on any taxpayer. 

From the amount of press that has been generated about the FTHB credit most potential homebuyers are probably aware that for a first-time buyer the tax credit is a maximum of $8000.00, unless they file as married-filing-separately in which case the tax credit would only be a maximum of $4,000.   Furthermore there is the maximum $6,500 tax credit, maximum $3,250 if married-filing-separately, for long-time residents that have owned and lived in the same residence consecutively for five years within an eight year period.  

There are some restrictions attached to the FTHB credit which are:

  • The credit cannot be claimed on homes costing more than $800,000.00
  • Taxpayers can only receive the full credit if their modified adjusted gross income is up to $125,000.00 for single filers and up to $225,000.00 for married filing jointly.  There is a reduced credit for taxpayers if single their modified adjusted gross income falls between $125,000.00 and $145,000.00 and for married filing jointly $225,000.00 to $245.000.00. 
  • The taxpayer, and spouse if married, must be 18 years of age on the date of purchase.
  • The credit is not available if the taxpayer is purchasing the home from a relative of linear descendent which would be from grandparents, parents, or children for example. 
  • The taxpayer may not claim the tax credit if they are gifted the property or if it is inherited.  

With the tax filing deadline of April 15th looming close by the FTHB credit offers taxpayers that have purchased their homes in 2010 the unique opportunity to take the tax credit in either 2009 or 2010.   Discuss with your CPA the impact that this credit would have for both your 2009 filing as well as a 2010 tax projection and decide which is best for your situation.   

To receive the FTHB credit the taxpayer must attach a copy of the settlement statement, usually form HUD-1, which should show all the parties signatures, the contract sales price, and the date of the purchase.  If the home is newly constructed and a copy of the settlement statement is unobtainable than a copy of the certificate of occupancy will generally suffice which should include your name, address, and the date the certificate was issued. 

As this tax credit also applies to mobile homes settlement statements do not apply in this case but its place the taxpayer would have to provide a copy of the retail sales contract, signed by all parties, the purchase price and the date of the purchase. 

For taxpayers claiming the credit as a long-time resident they will have to provide additional information.  A 1098 mortgage interest statement, the homeowners insurance statements, property tax records for five consecutive years in an eight year period. The eight year period should end on the date that the purchase of the new home is made.

This tax credit is set to expire on the stroke of midnight April 30th, 2010 with the only caveat being a buyer that has a binding contract prior to May 1st to purchase a property prior to July 1st, 2010.  Members of the Armed Forces as well as qualified federal employees serving outside the U.S. borders are given an additional year to take advantage for the First-Time Homebuyers Credit and will be required to be in a binding contract by April 30th, 2011 to purchase the property by the latest of June 30th, 2011.  If you’re pondering a new home purchase please speak with Mick or any member of his capable staff to take advantage of this tax credit.  

Who's doing your taxes?

Don't leave money on the table, or worse yet, on the IRS's table. Have your taxes prepared by a competent tax specialist. The money spent on such a service is often more than paid for by deductions you may have been totally unaware of.