Good Questions on $8,000 First Time Homebuyer Credit

photo credit: Ruth L

“Do I qualify if my wife was sole owner of our last house?”

“Can I get my $8,000 now?”

I was recently asked the above questions about the $8,000 tax credit provided in the American Recovery and Reinvestment Act of 2009. In case you are not familiar with this act, here are the high points:

Key Points on First Time Home Buyer Tax Credit

• The tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
• The tax credit does not have to be repaid.
• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

Now for the questions:

Question One: My wife solely owned the house we recently sold. Would I qualify as a first time home owner and thus the credit if the loan and the title for the new house was entirely in my name?

Answer: Sorry, but no loophole in this case. In defining “First-time home buyer”, the law tests the ownership of both married partners. If either of them has owned a home in the past three years, neither qualifies.

Question Two: My wife and I qualified for the credit and recently bought our house. Do we have to wait until we file our 2009 taxes to get our money?

Answer: I passed this question to my CPA niece Beth Grothoff. The short answer is “No. You can claim your credit now if you re-file your 2008 return or file a tax extension.”

Read on for Beth’s full answer:

“According to IRS Code Section 36(g), eligible first-time homebuyers who purchase a principal residence after December 31, 2008, and before December 31, 2009 may elect to treat the purchase as made on December 31, 2008. This allows them to either claim the credit on their 2008 or 2009 tax return. Taxpayers who elect to claim the credit in 2008 will get the benefit of the credit one year earlier. Taxpayers who have already filed their 2008 tax returns and are buying a home in 2009 can claim the homebuyer credit on an amended 2008 return (form 1040X). This will allow them to claim the credit without waiting to claim it on their 2009 return. The form 5405 will also need to be prepared along with the 1040X. The election can be claimed by checking the appropriate box on form 5405. They will need to consult their tax preparer for all the details. For some taxpayers, due to phaseout rules, and their individual tax situation, it may be more beneficial to wait until 2009. The time frame can vary for receiving their refund. It depends on the time the IRS takes to process the 1040X. It would probably take about 6-8 weeks….at least.

We received a newsletter recently that suggested that refunds were being delayed because of fraudulent claims. So, they may now require you to attach a copy of the HUD-1 Closing Statement to also be attached to the amended return. It is not required, and it is not in the instructions. I wouldn’t send any more information than is required. “

Note: Beth contacted me after sending this information to let me know that one of her clients who refiled their 2008 return just received their check for $8,000. It took six weeks and they were not required to submit the HUD-1 Closing Statement.