7 Tips About the First-Time Homebuyer Credit

The First-Time Homebuyer Income Tax Credit has been really popular with lots of folks – and there is still time to take advantage of it.  As you may be aware, the name of the credit is misleading – it’s been expanded to include folks who owned a house for a significant period of time and have purchased a new home during the prescribed period as well.

Like all tax provisions, this is one that you have to pay particular attention to the details, otherwise you could miss out on the credit.  Following are seven facts that the IRS wants you to know about claiming the credit (IRS Tax Tip 2010-27).

Seven Important Facts About Claiming the First-Time Homebuyer Credit

1. You must buy – or enter into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010.  If you have entered into a binding contract before April 30, 2010, you must close on the home purchase before October 1, 2010.
2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
3. To be considered a long-time resident homebuyer you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased.  Additionally, your settlement date must be after November 6, 2009.
4. The maximum credit for a first-time homebuyer is $8,000.  The maximum credit for a long-time resident homebuyer is $6,500.
5. You must file a paper return and attach Form 5405, “First-Time Homebuyer Credit and Repayment of the Credit” with additional documents (detailed below) to verify the purchase.  Therefore, if you claim the credit you will not be able to file electronically.
6. New homebuyers must attach a copy of a properly executed settlement statement used to complete such a purchase.   Buyers of a newly constructed home, where a settlement statement is not commonly available, must attach a copy of the dated certificate of occupancy.  Mobile home purchasers who are unable to get a settlement statement must attach a copy of the retail sales contract.
7. If you are a long-time resident claiming the credit, the IRS recommends that you also attach any documentation covering the five-consecutive-year period, including Form 1098, “Mortgage Interest Statement” or a substitute mortgage interest statement, property tax records or homeowner’s insurance records.

Photo by Steve Snodgrass