Tax credits for you home
Some of you may be intimidated by the overly complex legalese you have to wade through when reading tax documents. Don’t be… oftentimes (but not always) it is as simple as entering data into a form. Especially if you are like me and you file your own taxes using handy programs such as Turbotax software or H&R Block software.
1. First time home buyer tax credit
- Who qualifies: A refundable credit of $8,000 max or 10% of the purchase price ($4,000 if married filing separately.) To be eligible you (nor your spouse) could have owned another principle residence for 3 years prior to the purchase date of the new home on which you are claiming the credit.
- Income restrictions: Annual income limits are $125,000 for individuals and $225,000 for couples.
- Deadline: To qualify you must enter into a binding contract by April 30th, 2010… and must close by June 30th, 2010.
- Forms: To file, download and fill out IRS form 5405 and attach it along with your settlement statement. (form 5405 instructions)
- Tips: You must file your tax return on paper, you won’t be able to claim the credit using eFile (I assume this is due to the fact that you must also include the settlement doc and the IRS has no way to make this “electronic” for 2009 returns.) If you bought the home in 2010, you have the option of claiming the credit on either your 2009 or 2010 tax return. The new home must be used as a primary residence.
2. Non-first time home buyer tax credit
- Who qualifies: A refundable $6,500 credit max for non-first time home buyers who are purchasing a replacement home and have lived in their previous residence for a minimum of five consecutive (out of the last eight) years.
- Income restrictions: Annual income limits are $125,000 for individuals and $225,000 for couples.
- Deadline: To qualify you must enter into a binding contract by April 30th, 2010… and must close by June 30th, 2010.
- Forms: To file, download and fill out IRS form 5405 and attach it along with your settlement statement. (form 5405 instructions)
- Tips: You must file your tax return on paper, you won’t be able to claim the credit using eFile (I assume this is due to the fact that you must also include the settlement doc and the IRS has no way to make this “electronic” for 2009 returns.) If you bought the home in 2010, you have the option of claiming the credit on either your 2009 or 2010 tax return. The new home must be used as a primary residence.
3. Mortgage interest tax deduction
- Who qualifies: You can deduct your mortgage interest and real estate taxes paid. If you pay mortgage interest your itemized deductions may exceed your standard deduction. If this is the case simply itemize your deductions using a schedule A.
- Loan restrictions: Loans up to $1 million ($500,000 Married Filing Separately) are tax deductible, if the loan was secured by your home and was used to buy, build or improve the home. Interest paid on home equity lines of credit (HELOC) is tax deductible for loans up to $100,000 ($50,000 Married Filing Separately), but this limit may be reduced depending on the market value of the home on the loan origination date.
- Forms: To file, you will need Form 1098 – the Mortgage Interest Statement from your mortgage lenders. You will also need to download IRS Publication 936 and Schedule A. Complete the Schedule A and attach it along with your tax return. (schedule A instructions)
- Tips: Read Publication 936 if you need any more information on this deduction but it is usually pretty straight forward.
4. Other Home Deductions
- Deduct Loan Origination Fee – Points (loan origination fees) you pay (and even points the seller pays) are generally tax deductible when you purchase your home in full the year you pay them.
- Mortgage Insurance Premiums – You may be able to deduct qualified mortgage insurance premiums if your mortgage was taken out in 2007, 2008 or 2009.
- Gains from home sale – You can exclude home sale gain from taxable income to the order of $250,000 ($500,000 Married Filing Jointly) if you own and use the home as your main home for at least 2 years during the 5-year period ending on the date of sale.
In closing…
This list is not meant to be exhaustive so make sure you consult your tax attorney and/or accountant to ensure you find all eligible credits and deductions as they apply to your unique situation.
Oh so those are the guidelines. I didn’t know that. I’m thinking of learning more about these tax credits since it is importance to at least have an idea about this. Well anyway, thank you for sharing this info. Very helpful.
I can see maybe a tiny benefit for the First-Time home buyer credit — it might be enough for a renter sitting on the fence to take the plunge into home ownership. It has a magnifying effect of artificially propping up home-prices, at a smaller expense of landlords.
As for the ‘Non-First Time Home Buyer’ credit — WTH? Is this designed to just make busy work for realtors, title companies, mortgage originators, and all the other people involved in buying/selling houses?
For anyone, already in the process of moving, then take advantage of this government handout at the rest of societies expense — good for you. But from a macro-point of view, this makes no sense at all (just like the ‘Cash-for-Clunkers’ program).
I am having a hard time disagreeing with anything you just said. If someone happens to have bought recently and the credit applies to them, then they should probably take advantage… but, in my opinion, this should in no way be considered a deciding factor in moving forward with a home purchase!
Yeah, there is no reason to buy a house just for the 8k. If you are in a position to buy and were already planning on it, take the opportunity and let it help you, but if not, there is no point in over exerting yourself and then ending up in the same situation that people were in two years ago that caused this great market.
Great post Matt, even though I’ve written about this tax credit quite a bit, i didn’t realize that there was a requirement to file your return on paper to get the credit. I guess it makes sense because you have to send in a settlement statement – but I so like the ease of e-filing. Oh well – what are you going to do?
Matt, this home buyer tax credit article you have written is a great resource. No doubt, this will help many home buyers as they consider taking advantage of it. Keep on helping out.
I bought my home in feb. of 2008 can i get a tax credit cuz i didn’t get one on last years return?
All you need to do is check your situation against the rules in the form instructions… use the links in the post and go check it out.