First-Time Homebuyer Tax Credit
Certain military personnel, members of the Foreign Service, and employees of the intelligence community may qualify to claim the FTHBC on their amended 2011 Tax Returns. Find out about the extended Homebuyer Credit for members of the armed forces.
The credit was introduced in 2008 as part of the Housing and Economic Recovery Act. If you qualified for the credit in 2008-2010, but you did not claim it on your return, you may file an amended return in order to claim it.
Tax Breaks for Buying a Home in 2021
In April of 2021, United States Lawmakers and President Biden proposed the First-Time Homebuyer Act of 2021 which would grant taxpayers a refundable tax credit of up to $15,000 on the purchase of their first home. This bill has not been signed into law. If signed, however, the program would be for home purchases beginning on January 1, 2021 and may be retroactive for homes purchased in 2020. The credit may become permanent if passed as there is no end date in the drafts of the bill. As such, if signed into law, it may see inflation adjustments over the years.
Generally, to be classified as a first-time home buyer eligible for the credit, the taxpayer must:
- Be purchasing a home for the fist time in their life and claiming the credit for the first time
- If you claim the credit with a spouse who has already claimed the credit, then you would qualify for half of the credit amount ($7,500).
- Have not owned a home in 36 months prior to the purchase
- Fall within certain income limitations
- Be purchasing a primary residence, not a second home nor rental property
- Be 18 years or older or married to a spouse who is at least age 18
- Be purchasing the home from a non-relative.
Eligible taxpayers would receive this credit automatically when filing their return following the year of the purchase. The credit would be generally geared towards middle-to-lower income Americans. It will likely be for taxpayers earned under $100,000 annually or married taxpayers making under $200,000 annually. The amount is equal to 10% of the purchase price, limited to a maximum of $15,000 or $7,500 for married individuals filing separately.
If you sell and/or move from this home within four years, you will likely have to pay back some or all of the credit. This means even if you have to change your address for work or to live with a newly married spouse, you may have to repay the credit.
Keep up with home tax deductions to claim in 2021 and energy efficient home improvements if you own a home or plan on purchasing a home. eFile.com will help you report these deductions on your taxes and help you get the most out of your tax refund - sign up and start for free.
The First-Time Home Buyer Grant, 2021
In additional to the drafts of the reintroduced credit, there is also similar program called the Downpayment Toward Equity Act of 2021. This program is not signed into law. If it is signed, taxpayers purchasing a new home may be eligible for a cash payment or rebate of up to $25,000. To be eligible for the credit, the taxpayer must:
- Be buying a home for the first time
- Meet certain income limitations based on the area of the taxpayer
- Be intending to use the home as a primary residence
- Use a mortgage backed by the government
- Be a first-generation homebuyer for their family; have lived in foster care, or have legal guardiancy who had defaulted on a home loan.
The payment could be used as a down payment, to cover various real estate closing costs, reductions for mortgage interest rates, and many other expenses due to the home purchase. For example, in purchasing a $200,000 home, one could use the $25,000 to:
- Make a down payment of $20,000, potentially matching it with their own $20,000 make a payment of 20% of the price
- An additional $2,000 for real estate agent payments and closing costs
- $2,000 for mortgage rate access through a government backed program
- $1,000 for related home purchasing costs.
To receive the payment, the purchaser must have earned income within 20% over the median income for the area in which they are purchasing the home. Generally, this will apply to taxpayers making under $100,000 annually or married taxpayers making $200,000 per year.
If you move from this residency within five years for any reason, you would likely have to pay this money back.
If this is signed into law, no action is needed to receive the payment if you are eligible as mortgage lenders will take care of this automatically.
Other Homebuyer Credits, Incentives
While the original versions of the First-Time Homebuyer Credit have expired and the newly introduced federal credit may not become law, there are many state incentives for those buying a home for the first time. There are many programs, such as Mortgage Credit Certificates or MCCs, which may reduce your tax liability. This is done by being granted the MCC which can then be used to claim the federal Mortgage Interest Credit of up to $2,000 on your IRS Return. This nonrefundable tax credit is separate from the itemized mortgage interest tax deduction and is for interest paid during the tax year and is reported on Form 8396 - eFileIT. The mortgage interest credit can carry over up to three years from the year it is claimed.
Claim these home-related tax credits and itemized deductions on your return:
eFile.com will help you claim the most beneficial deductions and credits for you based on your tax situation and home information - start free.
Who needs to repay the First-Time Homebuyer Credit?
The original credit for homebuyers was less of a credit and more of an interest-free loan. Taxpayers who took the refundable credit in 2008 are obligated to repay the credit over 15 years. If you sell the home prior to repaying the credit, you must pay it in a one-time lump sum payment equal to the balance. This is done via Form 5405 - search for free PDF forms here or you can eFileIT with your return. If the credit was taken in 2009 or 2010, it may not have to be repaid as long as the home was owned for three years after the purchase and it remained as a primary residence.
You can check the First Time Homebuyer Credit Account Look-up tool on the IRS website. This online tool helps taxpayers to accurately report your repayment obligations on your tax return. You will also be able to check the original amount of the credit, annual repayment amount, total amount paid (with the most recent account update) and the total balance left to be paid.
First-Time Home buyer Credit Account Look-up
Alternatively, you can call 1-800-919-0352 to report your credit obligations to an IRS representative. You will need to enter your Social Security Number, date of birth, and complete address in the FTHBC online tools.
Repayment of the First-Time Homebuyer Credit is done via an additional tax on your annual income tax return. The credit must be repaid at a rate of 62/3% or 1/15 of the credit amount owed. If the maximum amount of the credit was taken, this generally works out to repayments of $500 per year. The credit is still required to be reported and paid back even if you wouldn't otherwise have to (e.g. don't have earned income).
When you prepare your taxes on eFile.com, you will be asked if you have to repay this credit. Input your information about the credit on the eFile App and we will report it on Schedule 2 and eFileIT with your return. IT's that easy!
Failure to report this information will result in an IRS rejection. On eFile.com, you can add this information when you sign in and re-efile for free.
The deadline to close on the purchase of a home and still qualify for the First-Time Homebuyer Tax Credit was September 30, 2010. But before you closed the sale, you must have entered into a binding contract before May 1, 2010. If you met both of these deadlines, you may be able to claim the credit on your 2010 Tax Return.
2010 Tax Credit for First-Time Homebuyers and Current Homeowners
The following information is strictly for previous year returns and does not apply. Review the information below only for informational purposes.
If you bought a home in 2010, you will want to know about the First-Time Homebuyer Tax Credit:
- Unlike the First-Time Homebuyer Tax Credit from previous years, the 2010 credit need not be repaid as long you own your house for at least three years and it remains your primary residence during that time.
- The First-Time Homebuyer Credit will allow taxpayers a maximum credit of up to $8,000 or $4,000 for married filing separately individuals.
- The full amount of the credit is refundable, which means that you will get it in your tax refund if you owed the IRS less than the amount of the credit.
- The credit may be claimed by many current and/or previous homeowners who purchased a new home to be their primary residence.
The credit was an amount up to $8,000 or 10% of the purchase price - it could not be used on a home purchase of $800,000 or more. Taxpayers an a modified adjusted gross income under $75,000 or $95,000 for married filing jointly were eligible for the credit. Those with a MAGI between $75,000 and $95,000 (or $150,000 to $170,000) would receive a reduced amount.
Claiming the First-Time Homebuyer Tax Credit does not necessarily disqualify you from claiming another credit for homeowners (for example, the Mortgage Interest Credit). You may be able to claim multiple such credits on your home purchase. Learn more about tax deductions and tax credits for homeowners.
- Even if the home you purchased this year wasn't your first, you may still qualify and be able to claim the tax credit. Homebuyers who have not owned a primary residence for three years leading up to the date of purchase qualify for this credit. For married couples, this restriction applies to both spouses.
- To qualify for the Homebuyer Tax Credit, you must have entered into a contract to buy your home on or before April 30, 2010 and you must have closed the sale by September 30, 2010.
- The amount of the credit begins to phase out at modified adjusted gross incomes of greater than $125,000 for single filers ($225,000 married filing jointly) and phases out completely at $145,000 ($245,000 married filing jointly).
- The credit may be claimed only on a primary residence. You may own more than one home, but you must use the newly purchased home as your primary residence in order for it to qualify for the credit.
- The credit is refundable, so you may receive it in your tax refund if you owe no tax or if the credit amount is greater than your tax liability.
- Special Extension for Members of the Armed Forces: Military personnel who served outside of the U.S. for 90 days or more between Jan. 1, 2009 and May 1, 2010 may qualify for an extension of one year.
To claim the First-Time Homebuyer Credit, if you purchased a home in 2010, 2009, or 2008, you may file an amendment on your 2011 (military only), 2010, 2009, or 2008 Tax Return and attach Form 5405 to the amendment.
If you have previously owned a home for at least 5 consecutive years in the 8-year period which ends on the day you purchase your new home, and used it as your primary residence, you may qualify for a tax credit of up to $6,500. The income phaseouts and other eligibility requirements for this version of the credit are the same as those described above.
Several restrictions apply to the First-Time Homebuyer Credit for any homes purchased in 2010. In fact, these restrictions apply to all homes purchased after November 6, 2009:
- You (or your spouse) must have been at least 18 years old on the purchase date.
- You may not be claimed as a dependent on another person's tax return.
- The purchase price of your home must not exceed $800,000.
- You must attach a properly executed settlement statement to your tax return.
- Your application for the credit may be denied due to an error in math, without the IRS having to conduct a full audit. (Using eFile.com is a great way to eliminate math errors.)
Purchased a Home Before 2010
Taxpayers who purchased their first homes between April 8, 2008 and January 1, 2009 may qualify for a different tax credit of up to $7,500, to be paid back interest-free in 15 equal yearly installments ($3,750 for married filing jointly individuals). If you didn’t claim this credit on your 2008 Tax Return but think you might qualify for it, you can file a tax amendment. You can also file an amendment if you purchased a home in early 2009 and claimed the credit on your 2008 Return, but now want to take advantage of the 2009 credit instead. Remember that if you purchased a home after Nov. 6, 2009, you are subject to the newer restrictions outlined above.
Purchased a Home After November 6, 2009
You must include a paper copy of the settlement statement with your tax return. This is generally a Form HUD-1 which shows all parties' names and signatures, the address of the property, the final sales price, and the official date of purchase.
If your new home was newly constructed with no settlement statement, you must include a copy of the certificate of occupancy showing the owner’s name, the address of the property, and the certificate's date.
If your new home is a mobile home with no settlement statement, you must include a copy of the retail sales contract showing all parties' names and signatures, the current address of the property, the purchase price, and the date of purchase.
If you are a long-time homeowner, you must prove that you occupied a prior home for at least a 5 year period in the last 8 years. The IRS recommends that you include with your return at least one of the following: property tax records, homeowner's insurance records, and/or a Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements.
The IRS requires that those new homebuyers who purchased their home after November 6, 2009 attach a copy of their settlement statement to their 2010 Tax Return or 2009 Amendment. Normally, the signatures of both the buyer and seller are required, but the IRS will accept settlement statements that are in compliance with local laws (e.g. in cases where there is not a signature line for both parties). Nonetheless, the IRS encourages homebuyers to sign their settlement statements, even if there is no seller's signature or if there are no lines for signatures at all.
Other Deductions and Credits
See what other tax credits and tax deductions you may qualify to claim on your tax return.
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