Real Life Examples

$7,500 Tax Credit for 2008

I made an eligible purchase of a principal residence in 2008 and claimed the $7,500 credit on my 2008 tax return. My brother, who has never owned a home, wishes to purchase a partial interest in the home this spring and move in. Will he qualify for the $8,000 credit, as well?

No. Any purchase of a principal residence (or interest in a principal residence) from a related party such as a sibling, parent, grandparent, aunt or uncle is ineligible for the tax credit. Since you and your brother are related in this way, he cannot qualify for the credit on any portion of the home that he purchases from you, even if he is a first-time homebuyer.

I purchased my home in early 2009 before the stimulus bill was enacted. I claimed a $7,500 tax credit on my 2008 return as prior law had permitted. Am I restricted to just a $7,500 credit?

No, you would qualify for the $8,000 credit. Eligible purchasers who have already claimed the $7,500 credit on a 2008 return for a 2009 purchase may file an amended return (IRS Form 1040X) for the 2008 tax year. This amended return will enable you to obtain the additional $500 credit amount and the rules for the 2009 credit would then apply.

$8,000 Tax Credit for 2009

If I claim my 2009 $8,000 credit on my 2008 tax return will I have to repay the credit just as the 2008 credits are repaid?

No. Congress anticipated this confusion and has made specific provision so that there would be no repayment of 2009 credits that are claimed on 2008 returns.

What if I purchase later this year but can't get to settlement before December l, 2009?

The $8,000 credit is available for purchases before December 1, 2009. A home is considered as “purchased” when all events have occurred that transfer the title from the seller to the new purchaser. Therefore, closings must occur before December 1, 2009 for purchases to be eligible for the credit.

I haven't filed my 2008 tax return yet. If I buy in 2009, do I have to wait until next year to get the benefit of the credit?

You'll have a helpful choice that might speed up the process. Eligible homebuyers who make their purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on December 31, 2008. You can claim the credit on their 2008 tax return that is due on April 15, 2009. In fact, you actually have three filing options:

• If you purchase between January 1, 2009 and April 15, 2009, you can claim the $8,000 credit on the 2008 return due on April 15.
• You can extend your 2008 income-tax filing until as late as October 15, 2009. (The IRS grants automatic extension, but you must file for the extension. See www.irs.gov for instructions on how to obtain an extension.)
• If you have filed your 2008 return before you purchase the home, you may file an amended 2008 tax return on Form 1040X (available at www.irs.gov)

Of course, 2009 purchasers will always have the option of claiming the credit for the 2009 purchase on their 2009 return.

How does my withholding affect my tax credit and my refund?

The following are withholding examples. The impact of estimated tax payments would be the same.

Scenario #1:

Sally plans her withholding so that her withholding is as close as possible to what she anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6,000. She has had $6,000 withheld from her paycheck. She also qualifies for the $8,000 homebuyer credit.

Result: Sally's withholding satisfies her tax liability and reduces it to zero. She will receive a refund of the full $8,000.

Scenario #2:

Nick and Jennifer file a joint return. Nick is self-employed and makes estimated payments; Jennifer has taxes withheld from her salary. When they compute their taxes, their combined withholding and estimate tax payments are $11,000, and their income tax liability is $9,800. They also qualified as first-time homebuyers and are eligible for the $8,000 refundable tax credit.

Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for a refund of $1,200 ($11,000-$9,800=$1,200). Because they are eligible for the refundable tax credit as well, they will receive a refund of $9,200 ($1,200 income tax refund+$8,000 refundable tax credit=$9,200).

Scenario #3:

Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint return. When they file their income tax return, their combined withholding is $5,000. However, their total tax liability is $7,200, generating and additional income tax liability of $2,200 ($7,200-$5,000). They also qualify for the $8,000 first-time homebuyer tax credit.

Result: Cesar and LuzMaria have been under-withheld by $2,200. Ordinarily, they would be required to pay the additional $2,200 they owe (plus any applicable interest and penalties). Because they are eligible for the refundable homebuyer tax credit, the credit will cover the $2,200 additional liability and they would instead receive a refund of $5,800.

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