To revive a stagnant housing market, Congress changed the terms of the First-Time Homebuyer Credit in February 2009. Instead of having to repay the IRS, qualified buyers were allowed to keep the credit. There were some conditions, however: Buyers were required to remain in the house as their principal place of residence for a minimum of 36 months.
First-Time Homebuyer Credit
In the original version of the First-Time Homebuyer Credit, the IRS allowed a maximum credit of $7,500 for homes purchased in 2008. However, qualified buyers had to repay the credit over a 15-year period, making it more of an interest-free loan. The taxpayer filed IRS Form 5405 to calculate the amount of the annual repayment.
Change in Credit Amount
Changes in rules governing the First-Time Homebuyer Credit in 2009 made it an even better deal for qualified buyers. For homes purchased in 2009 and until May 1, 2010, the credit is $8,000 or 10 percent of the purchase price, whichever is less. In addition, the buyer does not have to reimburse the IRS. The credit was available on amended 2008 tax returns, or current-year returns in later years, and was refundable, meaning the IRS paid it in the form of a refund if total tax liability was less than $8,000.
Conditions and Limits
To qualify for the $8,000 credit, buyers could not have owned a principal residence in the three years before the purchase. To avoid repayment of the credit, the buyer must live in the new house as a principal residence for at least 36 months. The law places income limits on buyers: $75,000 for single filers and $150,000 for those married and filing joint returns. Above those income levels, the first-time homebuyer credit begins to phase out below the full amount of $8,000.
Restrictions and Repayment
If you did move out of the residence within 36 months of purchase, the entire credit amount became due and repayable in the tax year in which you moved. On the three-year rule, the IRS made an exception for homes that were sold due to a death of the taxpayer. The IRS barred purchases of homes that were received as a gift or as an inheritance, and did not allow non-resident aliens to qualify for the credit.
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.