Tax Credits for First-Time Homeowners

• First-time homebuyers are those who have not owned property used as the taxpayer's principal residence for at least three years prior to purchasing the new home. Taxpayers who own rental property but do not use it as their principal residences may still qualify for the credit. For 2009 and 2010, the tax credit for first-time homeowners is 10 percent of the home's sale price up to $8,000. Homeowners must have purchased their new homes by May 1, 2010, and had until September 30, 2010 to settle on their purchases. Homeowners must substantiate their new purchases by providing settlement paperwork, the sale date, and signatures of all of the parties or full names of all of the parties.
  
  

Allowable Home Purchases

• Homeowners who purchased new construction residences, existing residences, townhouses, condominium units or single-family homes can qualify. Additionally, the IRS allowed taxpayers to purchase mobile homes and trailers that were not motorized. The homeowner must use the home as a primary residence and not as an investment home.
  
  

Tax Credits for Married Filing Separately

• Married taxpayers who do not file joint returns are each able to claim half of the allowable tax credit. For instance, for new homeowners, married taxpayers who purchase homes over $80,000 are eligible for a credit of $8,000, the maximum allowable limit or 10 percent of $80,000. Each spouse may claim a credit of $4,000 or half of the maximum $8,000. Single taxpayers may claim the entire credit of $8,000 in this example.
  
  

Tax Forms

• First-time homeowners must claim the tax credit using IRS Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. Homeowners who purchased homes in 2009 or 2010 do not need to fill out Part IV of the tax form. Taxpayers who are repaying their 2008 tax credit must complete Part IV, Repayment of Credit Claimed for 2008, if they sold their home or no longer use it as their primary residence.
  
  

Considerations

• Since tax laws frequently change, you should not use this information as a substitute for legal or tax advice. Seek advice through a certified accountant or tax attorney licensed to practice law in your jurisdiction.