7500 Tax Credit For First Time Home Buyers

Posted on December 17th, 2008 by jason

Jason
Congress created the $7500 tax credit incentive to help first time home buyers get into a home and stimulate the housing market and economy. Their rationale is that it will help stabilize home prices and increase home sales. First time home buyers purchasing a home between April 9, 2008 and before July 1, 2009 are eligible for the 7500 tax credit. The home must be used as a principal residence and be occupied within this time frame. For newly constructed homes, the settlement date is used instead of the date the home is occupied. A first-time home buyer is any buyer who has not owned a principal residence, i.e. single family home, condo, townhouse, mobile home, houseboat, during the three years prior to the home purchase. Thus, even people who have bought a house before may still qualify for the tax credit. An important caveat for married couples regarding the 7500 tax credit is that if any spouse has owned a home as a primary residence in the past three years, then neither spouse may qualify for the first-time home buyer tax credit. Ownership of non-primary residences such as rental properties or vacation homes does not disqualify a first-time home buyer from the $7500 tax credit. All you have to do is claim the tax credit on your federal income tax return. It’s that easy.

There are a few restrictions regarding the 7500 tax credit you should know about. First, the tax credit may not be available or only partially available based on your Adjusted Gross Income (AGI), and this varies for single vs. married couples. The tax credit is completely unavailable to single people with an AGI greater than $95,000 or married people filing jointly with more than $170,000 in AGI. The credit is evenly split for married couples filing seperately, i.e. each spouse can only claim $3,750. Second, the 7500 tax credit is limited to 10% of the purchase price of the home and capped at $7,500. So as long as the home price is greater than $75,000, most people can get the full credit. Also, the tax credit is basically a zero interest loan as it will eventually have to be paid back to the government (without interest), over a 15 year period or when the home is sold. The first payment is not until 2 years after the credit is claimed. The payments are generally calculated as the credit amount divided by 15. Thus, a 7500 tax credit would be paid back at $500 per year for 15 years or when the home is sold, which ever comes first. If the home is sold and there is not enough capital gain to payback the remaining portion of the tax credit, then the debt may be forgiven.

For specific questions regarding the tax credit and your specific tax situation, please call a tax professional.

Jason
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43 Responses to “7500 Tax Credit For First Time Home Buyers”

  1. Chris, on December 18th, 2008 at 9:12 am Said:

    Great article on the tax credit and thanks for sharing it! Good to know I have until July 1st ‘09 to get a new home.

  2. sandra lovic, on December 21st, 2008 at 1:13 am Said:

    I buy my home at the end of february am I qualified for tax return credit

  3. amy williams, on December 30th, 2008 at 3:45 pm Said:

    We closed on our house 1-31-08. We neither one have previously owned a home. Will we get the credit?

  4. Jason, on January 28th, 2009 at 10:50 am Said:

    Hi Sandra and Amy, the time period to be eligible for the credit is 04/01/2008 to 06/30/2009. Home purchases in Jan or Feb 2008 would not be eligible as I understand it.

    Jason

  5. Kyle, on January 29th, 2009 at 8:55 am Said:

    “First time home buyers purchasing a home between April 9, 2008 and before July 1, 2009 are eligible for the 7500 tax credit. ”

    Right in his article…

  6. Marc, on January 30th, 2009 at 6:08 am Said:

    Jason,

    the article above states that the dates are 4/9/2008 - 6/30/2009. Has this changed? I just noticed your response to the above comments and am getting worried that I will not qualify either.

    We should close on our house on Feb 6th. According to the dates in the article we should qualify. Looking at your comment on Jan 28th we do not?

    sorry, but the conflicting dates are confusing me. care to clear this up?

    thanks.

  7. michael, on January 30th, 2009 at 8:36 am Said:

    jason,

    just need to fix your statement a bit, it is april 2008 to june 2009. so for amy, no, i dont think you qualify. Sandra, if you are buying it at the end of this february, (2009) you are good, last february, no, you dont qualify either

  8. jason, on January 30th, 2009 at 9:01 am Said:

    My bad….I had a typo in my comment on Jan 28, and I now fixed it. The time frame for the credit is April 2008 to June 2009.

    Thanks for the heads up Marc.

    Jason

  9. jason, on January 30th, 2009 at 9:06 am Said:

    Here is a link to the IRS website that contains more information on the 7500 Tax Credit:

    http://www.irs.gov/taxtopics/tc611.html

    It goes into more detail on the Modified Adjusted Gross Income Limit, as well as the Recapture of Credit.

    Jason

  10. william, on February 2nd, 2009 at 9:22 pm Said:

    if i refinance after the 7500 dollars do i have to paid the money back

  11. Jason, on February 3rd, 2009 at 10:29 am Said:

    Hello William, the tax credit does not have to be paid back if you ever refinance your home at a later point in time. It’s only paid back when you sell the house or over 15yr period after you claim the credit.

    Jason

  12. Betty, on February 3rd, 2009 at 2:13 pm Said:

    I’ve been in the market for a little over a year now, with some breaks in here and there…This sounds great but let’s say I don’t find a home till later in the year or not at all for that matter…what then?

  13. jason, on February 3rd, 2009 at 4:03 pm Said:

    Hi Betty, if you’re buying a newly constructed home, then your settlement date must be before June 30th 2009. If you’re buying an existing home, then you must occupy the new home by June 30th 2009.

    Jason

  14. Omar, on February 4th, 2009 at 9:51 am Said:

    I plan to purchase a home May of this year (2009) Taxes have to be filed by April 15. Do I request the credit now or do I have to wait until I file my 09 taxes? Can you request the credit before you purchase a property?

  15. jason, on February 4th, 2009 at 10:23 am Said:

    Hi Omar,

    You ask a very good question. The last paragraph at http://www.irs.gov/taxtopics/tc611.html regarding “Special Election”, allows you the opportunity to claim the credit on your 2008 taxes even though the home is bought after Dec 31st 2008 and before July 1st 2009. However, you must have already bought the house to claim it. If you’re going to buy the house after April 15th, you may claim the credit on your 2009 taxes, or you may be able to file an extension on our 2008 taxes so you can still claim it on your 2008 taxes. You may want to seek some guidance from a tax professional so you can weigh your options.

    Here is a paraphrase of the “Special Election” from the IRS publication:

    “Special election to treat purchase as made in prior year.

    In the case of a purchase of a principal residence after December 31, 2008, and before July 1, 2009, a taxpayer may elect to treat such purchase as made on December 31, 2008. ”

    For your reference, here is the offical tax form 5405 for claiming the credit:

    http://www.irs.gov/pub/irs-pdf/f5405.pdf

    You can see that line C gives you the option of applying the 2009 purchase to your 2008 taxes.

    If you find out more on this issue, please post it here.

    Jason

  16. Brett, on February 5th, 2009 at 10:31 am Said:

    I have already e-filed my 2008 taxes and claimed the original $7500 “credit.” If this item stays in the stimulus package, would I be eligible for the proposed increase to $15k and would I also be able to treat it as more of a true ‘refund’ with no repayment requirements?

  17. qun peng, on February 5th, 2009 at 4:08 pm Said:

    I bought on 04/01/2009, do I qualify for $7500 back?

  18. qun peng, on February 5th, 2009 at 4:09 pm Said:

    I bought my first house on 04/01/2009, do I qualify for $7500 back?

    Thanks

  19. qun peng, on February 5th, 2009 at 4:16 pm Said:

    Hi, Jason,
    You wrote the following:
    Hi Sandra and Amy, the time period to be eligible for the credit is 04/01/2008 to 06/30/2009. Home purchases in Jan or Feb 2008 would not be eligible as I understand it.

    I bought my first house on 04/01/2008, do I qualify $7500 credit?

    Thanks

  20. jason, on February 11th, 2009 at 6:10 pm Said:

    Hi Qun, sorry for the late response. Yes, you should be able to qualify for the credit as long as you meet the other irs guidelines regarding eligiblity, such as income threshold and you have not had a primary residence in the past 3 years.

    Jason

  21. jason, on February 11th, 2009 at 6:19 pm Said:

    Hi Brett, I don’t believe you will be able to claim both.
    However, the 15000 tax credit is quite a bit different than the 7500 tax credit. According to the 15000 tax credit proposal, you can only claim the credit if you have a tax liability, and only up to the amount of your liability. Thus, if you did not have any tax liablity, you would not be able to claim the 15000 tax credit anyway.

    Jason

  22. Charles, on February 12th, 2009 at 3:39 pm Said:

    Hi, with this new stimulus package, will I have to pay the “tax credit” back, granted I’m elegible?

  23. Betty, on February 18th, 2009 at 12:44 pm Said:

    I already filled my taxes. How can I go about claiming the 7500 tax credit? Is it too late?

  24. Mike, on February 19th, 2009 at 10:42 am Said:

    How do they define “first occupied the home” ? I already owned the land and paid a contractor for new construction. I got the certificate of occupancy in December 2008- but that just certifies that the home passed code. I did not release the final payment to the contractor and physically occupy the home until January 2009. Do I qualify for the 2009 tax credit?

  25. jason, on February 20th, 2009 at 11:07 am Said:

    Hi Charles, according to the legislation that’s in place currently, the 7500 tax credit will have to be paid back.

    However, the 15000 tax credit that’s being proposed will not have to be paid back. I’ve got an article in the works regarding the 15000 tax credit, which passed through the Senate on 2/4/2009.

  26. jason, on February 20th, 2009 at 11:08 am Said:

    Hi Betty, you can still claim the tax credit. You would need to send in an adjusted tax return for 2008 taxes.

  27. jason, on February 20th, 2009 at 11:12 am Said:

    Hello Mike, yes can still qualify for the 7500 tax credit on your 2008 taxes. You have until 6/30/2009 to qualify for the credit. You can apply it to your 2009 tax return, or your 2008 tax return.

    Please see Part I, Section C of form 5405 at http://www.irs.gov/pub/irs-pdf/f5405.pdf to see how you can retroactively claim the tax credit.

    Jason

  28. Steve, on February 21st, 2009 at 4:37 pm Said:

    Jason, the article says this tax credit starts on April 9th correct?? On a previous email response you said someone who bought a house on April 1st was eligible? Pleas let me know - I purchased on April 1st as well. THanks

  29. jodi, on February 21st, 2009 at 8:32 pm Said:

    I read all about the 7,500 tax credit.
    But my question is…My realtor said something about 4.5% rate on new home loans in the new package, across the board, any and all loans, including Conventual, Rural Development, etc….Does anyone know if this is true?

  30. Lisa, on February 27th, 2009 at 5:12 pm Said:

    I closed on my house on April 7. Do I qualify? I am getting confused if it is April 9 when it starts or April 1.

  31. joninray, on March 2nd, 2009 at 7:02 pm Said:

    Well, I just got back from my CPA and I will take that “credit”! Seems that many people are misinformed…YOU DON’T PAY BACK EVERY DIME!!! My wife and I were told that anyone who akes the “loan” will only pay back the percentage of your tax bracket…if you are in the 15% tax bracket, then you will pack back (over 15 years) 15% of $7500. In other words…my wife and I will only be paying back about $1125!!!

    Who wouldn’t take a loan where you don’t pay ALL of the loan back and on top of that…at 0% interest!?!?!? I will take that…have’nt ever said this before but I will now…”Thanks, Bush!” It may not be as good as Obama (don’t have to pay ANYTHING back, BUT this is better than nothing. Good thing I waited to close after the first of May!!!

  32. Anthony, on March 5th, 2009 at 9:54 am Said:

    Jason,

    I already filed my 2008 taxes and received my return and I did not claim this $7500 credit. I bought my first home in August of 2008 can I claim the credit on my 2009 taxes or is the only way to get the credit to send in an adjusted tax return for 2008 taxes?

    Thank you,
    Anthony

  33. jason, on March 6th, 2009 at 12:25 pm Said:

    Hi Steve, this article on the 7500 tax credit at http://www.irs.gov/taxtopics/tc611.html tells me it on or after April 9th 2008.

    Hope this helps.

    Jason

  34. jason, on March 6th, 2009 at 12:31 pm Said:

    Hi Lisa, this article on the 7500 tax credit at http://www.irs.gov/taxtopics/tc611.html tells me it on or after April 9th 2008.

    Also, if you look at the tax form at http://www.irs.gov/pub/irs-pdf/f5405.pdf, it says the following on page on page 1:

    “Who Can Claim the Credit
    In general, you can claim the credit if you are a first-time
    homebuyer. You are considered a first-time homebuyer if:

      You purchased your main home located in the United
      States after April 8, 2008, and before December 1, 2009.”

    Jason

  35. jason, on March 6th, 2009 at 12:41 pm Said:

    Hello Anthony, if you don’t want to file an adjusted return, I found some information on the IRS’s website that says you can claim the 7500 tax credit on your 2009 return.

    Please check out the information at: http://www.irs.gov/newsroom/article/0,,id=187935,00.html?portlet=7.

    Here is what your are looking for:

    “The First-Time Homebuyer Credit can be claimed on Form 5405, which is filed with your 2008 or 2009 federal tax return.”

    Jason

  36. jason, on March 6th, 2009 at 12:43 pm Said:

    Here is some more useful information on the first time home buyer tax credit:

    http://www.irs.gov/newsroom/article/0,,id=204671,00.html

    http://www.irs.gov/newsroom/article/0,,id=187935,00.html?portlet=7

    Jason

  37. Jennifer, on March 7th, 2009 at 7:08 pm Said:

    My husband and I purchased our condo Aug. 1, 2008. We actually qualified as first time homebuyers, at least as far as getting loans through the FHA and MSHA (Maine State Housing Authority) were concerned. We owned a mobile home (tailor) that was our primary residence from 1/1/05 to 8/1/08, but it didn’t count as an actual “home” because of two things: 1. We didn’t own the land (we lived in a park, and paid rent), and 2. The trailer still had the original wheels underneath it and still connected to the home, I guess making it almost something of a “vehicle” at least in some sense of the word. Now, doesn’t this seem like we should also qualify as first time home buyers for this 7500.00 credit?

  38. lacy, on March 10th, 2009 at 4:30 pm Said:

    Just heard today that first time buyer who received the $7500 tax credit do not have to pay it back now. Do you know if this is true?

  39. Jessica, on March 13th, 2009 at 9:57 pm Said:

    Do you get a check back for the $7500 (if you qualify)?

  40. Greg, on March 14th, 2009 at 7:14 am Said:

    My wife and I purchased a home in October 2008 and would like to claim the first time home buyer tax credit for $7500. We do own property with a mobile home on it; however, we have rented the home out since October 2006, meaning that during the three year window prior to the new home purchase, the mobile home was rented out two out of three of those years. Since the requirements indicate that you could not have owned a “primary residence” within 3 years of the purchase date of the new home, and a primary residence is defined as a residence in which you spend most (over 50%) of your time, could we take the credit based on upon the fact that we only occupied it for the first year (1/3 or 33%) of the last three years? During the other two years (2/3 or 66%) of the three year window, it was rental property. Would you agree?

  41. Zack, on March 27th, 2009 at 8:18 am Said:

    I bought a contract on a house under construction on February of 08, closed April 4th, construction was actually finished around the 15th, and took residency on the 15th.

    The closing settled on April 11th, 2008 according to clerk of courts.

    Do i qualify?

  42. Doug, on April 14th, 2009 at 9:31 am Said:

    Here’s one for ya.

    Closed on 3.20.08. i renovated the house and did not occupy until June 08? Can i claim the loan?

    Thanks!

  43. audra todd, on January 4th, 2010 at 7:09 pm Said:

    questionnnn me and husband bought a house oct 2008 we ddint claim or house last year cause we didnt know bout this ….can we still claim last years and egt our 7500 credit back then what do we do

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