Details on the 2009 / 2010 Homebuyer Credit

Mortgage and Lending with American Mortgage & Equity Consultants Inc. NMLS 238103

I know this homebuyer credit is somewhat confusing so here are all the details below.  I look forward to helping many 1st-time homebuyers and buyers with their mortgage needs in Minnesota and Wisconsin in 2010.  Your one stop Mortgage Guy who has been in business for almost 8 years!

How to Qualify for the $8,000 First-Time Homebuyer Credit Extended into 2010

Homebuyer credit extended, enhanced through April 30, 2010

The popular homebuyer credit got a big boost thanks to the Worker, Homeownership, and Business Assistance Act of 2009, signed into law on November 6, 2009. The new law extends and expands earlier laws:  

  • First-time homebuyers get more time to qualify for a federal tax credit of up to $8,000. The deadline for buying a home has been extended beyond November 30, 2009.  Buyers must purchase or enter into a binding contract to buy a home on or before April 30, 2010 and close on the home by June 30, 2010.
  • Starting on November 7, 2009, the law includes a new credit of up to $6,500 for homebuyers who have owned a home for a period of five consecutive years in the past eight years. 
  • Also beginning on November 7, 2009, the income requirement ceiling is lifted allowing more middle and upper middle-class buyers to qualify for a either kind of credit. 

While many of the rules are the same for the $8,000 first-time homebuyer credit and the $6,500 homebuyer credit, there are important differences.

To learn more the new credit, read the New $6,500 Homebuyer Credit for Current Homeowners.

Important information about claiming the credit

Buyers who make their purchases in 2009 can amend their 2008 returns to claim the credit, or they can wait to claim it when they file their 2009 taxes.

Those who buy in 2010 can choose to claim the credit on either their 2009 or their 2010 returns.

Taxpayers who make their purchases after Nov. 6 must use a new version of IRS Form 5405, First-Time Homebuyer Credit, to claim their credit. The form should be available for TurboTax users soon. We will update this article when the new form is ready.

Also, taxpayers claiming the credit on their 2009 returns (rather than on their amended 2008 returns), must use the new version no matter when the house was purchased.

However, a taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405 available in 2008 versions of TurboTax. For more information, see First-Time Homebuyer Credit: How to Amend 2008 Return for 2009 Purchase.

Taxpayers who claim the credit on their 2009 tax returns should NOT e-file them. They must file a paper return instead and the settlement sheets showing that the home sale closed must be attached.

How the first-time homebuyer credit works

The credit is equal to 10 percent of the home purchase price, up to a limit of $8,000.

If you qualify for the credit, either your refund will be increased or your taxes reduced by as much as $8,000.

You can keep the credit, as long as you own the home for at least three years.

The credit is not available if you buy your home from a close relative, such as your spouse, parents, grandparent, child or grandchild -- or a close relative of your spouse. 

Who is considered a "first-time" homebuyer?

You are, if you've never owned a home as your principal residence.

However, you could qualify even if you've owned a home before, just not as your principal residence during the three years prior to the purchase.

Your principal residence is where you live for most of the year.

Important: Married couples cannot qualify for the credit unless both spouses meet the three-year rule.

Other restrictions on homebuyers:

  • You must be 18 years or older on the date of purchase. If married, at least one spouse must be 18 or older. 
  • You can't be claimed as a dependent by another taxpayer during the year you buy the home.  

What qualifies as a principal residence?

It can be a house, a condo, co-op, house trailer or houseboat, within the United States. Vacation and rental homes are not eligible.

The credit does not apply to any home purchased for $800,000 or more.


What are the income limitations?

For purchases on or before November 6, 2009:

For single taxpayers, the credit decreases as modified adjusted gross income rises above $75,000, and it disappears altogether above $95,000.

For married couples, the credit starts to decrease at modified adjusted gross of $150,000 and disappears after $170,000.

Modified adjusted gross income is your adjusted gross income, or AGI (your gross income minus certain deductions such as IRAs and alimony) with tax-free foreign income counted.

For purchases after November 6, 2009 and on or before April 30, 2010:

For single taxpayers, the credit decreases as modified adjusted gross income rises above $125,000 and it disappears altogether above $145,000.

For married couples, the credit starts to decrease at modified adjusted gross of $225,000 and disappears after $245,000. 

What is considered the "purchase price"?

The purchase price is generally your down payment, if any, plus your mortgage.

A mortgage can be a first or second mortgage or notes you gave the seller in payment.

How does the credit affect the taxes I owe and the refund I get?

The credit reduces your tax liability, that is, the amount of taxes you are required to pay. Depending on your tax withholdings, you could get a bigger refund or owe less in taxes when you file.

If, for example, your taxes owed for one year are $6,000, you've had $4,000 withheld from your wages, and you buy a home worth $100,000 in January of 2010, the housing credit would entitle you to a refund, as shown below.


Tax liability $6,000
Minus housing credit  -8,000
Minus withholding  -4,000
Refund $6,000
    But if, for example, your tax liability was $10,000, but you had paid no withholding, then the credit would reduce the taxes you owe, as illustrated below.    
Tax Liability  $10,000
Minus housing credit    -8,000
Minus withholding        0
Taxes due    $2,000

How the 2008 first-time homebuyer credit works

The 2008 first-time homebuyer credit offered terms much less favorable than the recently revised credit. The 2008 tax break was essentially an interest-free loan worth as much as $7,500, created under The Housing Assistance Tax Act of 2008.

  • Known as the first-time homebuyer credit, the tax break was available to taxpayers who purchased a home on or after April 9, 2008 and before Jan.1, 2009, and met certain income and other requirements.
  • The credit is equal to 10 percent of the home purchase price, up to a limit of $7,500. 
  • Unlike other tax credits, this one must be paid back to the government, over a 15-year period.

How is the credit repaid?

Repayments begin the second year after the tax year that the home was purchased. So the first payment would be reported on the 2010 tax return, as a tax liability. Taxpayers who took the credit might want to increase their withholding or make quarterly estimated payments to cover the repayment and avoid penalties for under-withholding.

What if circumstances change?

  • If you sell the house before the end of 15 years, you will have to pay the balance remaining on the credit on the tax return for the year the house was sold.
  • If you no longer use the home as your principal residence (say you rent it out), you pay the remaining balance on the tax return for the year the use changed.
  • If you die before the 15 years, the balance does not need to be repaid.
  • If you get a divorce and the home is transferred to your spouse, your spouse will be responsible for future payments.

Phil Olson
Sr. Mortgage Planner
Mortgage & Investment Consultants
1058 Hastings Ave
St. Paul Park, MN 55071



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