Posts Tagged ‘$8000 tax credit for first time homebuyers’

The Internal Revenue Service has clarified which documentation taxpayers need to submit to claim the first-time and move-up homebuyer tax credit.

The IRS is requiring the filing of Form 5405 for both, first-time buyers claiming $8,000 tax credit, and repeat buyers claiming $6,500 tax credit.

However, IRS is not demanding that all parties’ signatures be on the HUD-1 settlement document in areas where requiring both the buyer and the seller to sign the document is not common.

The IRS clarification says: “In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law. … The IRS requires those buyers to sign the settlement statement prior to attaching it to the tax return.”

For repeat buyers to qualify for the $6,500 tax credit, the IRS is seeking documentation that home buyers have lived in the previous property for a consecutive five of the past eight years. Proof can include property tax records, home owner insurance records, or mortgage interest statements.





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The IRS has spelled out additional guidelines for eligibility for the home buyer $8,000 tax credit when co-borrowers purchase a property.

When a home-owning parent of an adult child co-signs for a mortgage and both names appear on the note, the IRS says that under some circumstances, the first-time home buyer can qualify for the whole amount.

The IRS says the parent doesn’t qualify for any portion of the credit, but if the child hasn’t owned a home during the three years preceding the current purchase and can qualify based on income, he or she can be allocated the entire $8,000 credit.

When un-married individuals co-purchase a home and only one of them is eligible for the credit, then the full $8,000 can be allocated to the eligible buyer.

More about the extended and expanded $8,000 tax credit that expires April 30, 2010

SOURCE: Washington Post Writers Group

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On November 7, 2009 the $8,000 tax credit was extended and expanded. The new tax credit is good through April 30, 2010.

The new tax credit:

1) 10% of purchase price with maximum $8,000 – in other words, homes below $80,000 get 10% tax credit, and all homes above $80,000 and below $800,000 get $8,000 tax credit for first time homebuyers

2) There is a limitation on cost of the purchased home – tax credit applies only to principal residences up to $800,000
3) There is no tax credit for homes above $800,000

4) Expires April 30, 2010

5) First time home buyers did not own a home in the last 3 years prior to purchase/closing day

6) Other home buyers who are current homeowners qualify for a tax credit equal to 10% of the purchase price up to  $6,500 if they used the home sold as a principal residence consecutively for 5 of the previous 8 years 

7) The purchasers have until July 1, 2010, IF a written binding contract to purchase is in effect on April 30, 2010

8*) Income limits increased and are as follows:
$125,000 – Single purchaser
$225,000 – Married purchasers

9) Tax credit is a direct reduction of tax liability, not just taxable income and does NOT need to be repaid

10) The tax credit CAN be monetized for closing costs expenses, and downpayment above the required 3.5%,  if borrowers use FHA-insured mortgage

11) Purchasers must attach documentation of purchase to tax return to claim credit – IRS Form 5405

12) Cannot purchase a home from a close relative: spouse, parent, sibling, child, grandparents

13) Step-relatives qualify – Homes purchased from not direct blood relatives do qualify

14) If parents co-sign the mortgage and child qualifes – the child can claim the credit

15) Cannot claim a tax credit on a home purchased by a Dependent



$8,000 tax credit for first-time home buyers

$6,500 tax credit  for trade-up home buyers


NOTE: For additional details contact lender, tax advisor, or an attorney.

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The IRS is cracking down on people who do not qualify for the first-time homebuyer tax credit but try to claim it anyway.

The IRS says it is investigating several cases of people who falsely claimed the first-time homebuyer credit on their federal income tax returns. Getting caught making a false claim carries a penalty of up to three years in prison and a fine of as much as $250,000.

The First-Time Homebuyer Credit, enacted in 2008 and modified in 2009, provides up to $8,000 for first-time homebuyers. The purchaser must be someone who has not owned a primary residence in the previous three years. If the taxpayer is married, this requirement also applies to the taxpayer’s spouse.

The $8,000 tax credit applies only to homes purchased between January 1, 2009 and closed before Dec. 1, 2009 – unless it is extended by the Congress.

The credit may not be claimed on the purchaser’s tax return until AFTER the taxpayer closes and has purchased the home.

SOURCE: The Internal Revenue Service; The Boston Globe

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The Virginia Housing Development Authority, VHDA, Homebuyer Tax Credit Plus – Program Can be Used for Closing Costs, Points, (and Downpayment) on Loans Closed by December 1, 2009

The Virginia Housing Development Authority (VHDA) is launching a new program to allow first time homebuyers to use the Federal First Time Homebuyer $8,000 Tax Credit to finance closing costs, points to lower their interest rate, and downpayment on a VHDA mortgage.  Borrowers can use the Tax Credit for downpayment only if they satissfied the 3.5% FHA requirement – only then the credit can be used to make a larger downpayment.

The release of VHDA’s program follows HUD’s May 2009 announcement that FHA approved lenders are permitted “monetization” of the Federal First Time Homebuyer Tax Credit through short-term bridge loans.


 VHDA Homebuyer Tax Credit Plus Program Features: 

  • The maximum loan amount for the first mortgage is the maximum FHA mortgage
  • Affordable fixed-rate financing on both mortgages
  • 0% interest on the second mortgage for the first year
  • No payments required on the second mortgage for the first year
  • Beginning with the 13th month, the second mortgage will have the same interest rate as the first mortgage and monthly payments must be made thereafter
  • Maximum second mortgage loan amount – up to 5% of sales price (no cash back)


VHDA Homebuyer Tax Credit Plus Program Details:

Time Limit: Loan must close no later than November 30, 2009.

 Eligibility Requirements: Borrowers must meet federal First-time Homebuyer Tax Credit requirements as well as VHDA’s requirements regarding first-time homebuyer status, income limits, sales price limits, etc.

Maximum Income: The combined income of all household members may not exceed VHDA’s maximum income limits, which for Washington D.C. area: Arlington County, Fairfax County, Fauquier County, Loudoun County, Prince William County is $86,900 for 2 or fewer persons, and $100,000 for 3 or more persons.

Maximum Sales Price/Total Loan Amount: The combination of the first and second mortgage may not exceed VHDA’s sales price/income limits, which for Washington D.C. area: Arlington County, Fairfax County, Fauquier County, Loudoun County, Prince William County is $408,100.

Minimum Credit Score: Minimum of 620.

Qualifying Ratios: FHA Ratios of 31% payment to income/ 43% debt to income apply.

Required Borrowers Funds: Borrowers must have a minimum of 1% of the sales price verified as their own funds to be contributed toward the transaction or have available as reserves.

Pricing Options: Pricing Options are available. Rate on the first and second mortgage will be the same. No points or origination fee charged on the second mortgage.

In order to qualify for any VHDA loan product, including Homebuyer Tax Credit Plus, individuals must take a free VHDA homeownership education class. These free classes cover topics including credit issues, personal finances, home inspections, the role of lenders and real estate agents, and the closing process. In-person and online classes can be scheduled by visiting www.vhda.com.


Eligible buyers have the following three re-payment options:

  1.  Pay off the second mortgage with the Federal First Time Homebuyer $8,000 Tax Credit.
  2. Pay off the second mortgage over 29 years – and save the tax credit to pay for future emergencies, make home improvements, or pay off/pay down existing debt.
  3. Make principal payments on the second mortgage before the repayment period begins; this will reduce the required monthly payments for the remaining 29 years on the second mortgage.  

If borrowers are not eligible for the First Time Homebuyer Tax Credit, or the tax refund (if any) is not enough to repay the First Time Homebuyer Tax Credit plus loan, borrowers are still obligated to repay the second mortgage, plus all applicable interest.  For more information, visit http://www.vhda.com/sf/pdf/HomebuyerTaxCreditPlus.pdf or call 877-VHDA-123.


Information about $8,000 tax credit is available at http://www.irs.gov/newsroom/article/0,,id=204671,00.html?portlet=7

Related posts about $8,000 Tax CreditFHA Approved Bridge Loans for $8,000 Tax Credit – Monetization 



NOTE: For details always contact your trusted Lender

NOTE: Contact me personally for a no obligation Buyer Consultation to see if you qualify for the Federal and VHDA $8,000 Tax Credit



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Potential first-time buyers have yet another reason to consider purchasing a home:  The monetization of the tax credit. Here are four ways first-time homebuyers can get access to the $8,000 that can be used for upfront costs for homes purchased by December 1, 2009.

Short-term bridge loans are now available from a variety of lenders so that buyers can tap the benefits of the $8,000 Federal Housing Tax Credit for First-Time Home Buyers upfront. If buyers are eligible for the $8,000 tax credit, these bridge loans will enable them to use the money for their down payment and closing costs with the credit as collateral. Consumers will have to pay the money back after they’ve filed their tax return and received a refund.

There are essentially four sources for this type of financing, and their terms can vary considerably.

1. State HFA Bridge Loans

As of early June 2009, 10 state Housing Finance Agencies offered tax-credit bridge loans, and more were planning to do so. The easiest way to learn whether one is offered in your state is to get your HFA’s phone number through a Housing Finance Agency list maintained by the National Council of State Housing Agencies (NCSHA). NCSHA also maintains a list of HFAs that already offer the bridge loans.

Although each state HFA loan differs, here are some typical characteristics:

  •  Buyer will need to make a minimum downpayment from their own funds, probably around $1,000.
  • Buyer will have to go through local lenders approved by the HFA to actually originate the loan, since HFAs are not originators.
  • In some cases, the loans are interest-free; check with the state HFA to find out.
  •  The HFAs have set aside a limited amount of funds for the loans, so they tend to be made on a first-come, first-served basis.
  • Buyers will be expected to use HFA-backed financing for the mortgage on their home purchase.

This financing typically comes with a below-market interest rate and usually requires borrowers to meet eligibility criteria. These criteria will vary greatly, but they often require borrowers to be first-timer buyers and meet income-eligibility requirements. For the bridge loans, there’s a good chance the criteria will be similar to what’s required for the tax credit.

Since the bridge loans are made in tandem with your HFA’s financing products, buyers apply for the loans when they apply with the HFA-approved lender for their mortgage financing. A list of approved lenders is on the HFA’s Web site.

2. Local Government or Nonprofit Loans

If state HFA where buyer resides doesn’t offer the loans, buyer can ask an HFA staff person to direct to local nonprofits or state or local government agencies that do. If that person can’t help, a good place to start a search is with a national nonprofit group called NeighborWorks, which maintains a list of more than 200 local affiliates that provide housing assistance. The loan programs for each of these affiliates differ, so buyers will need to check with them on their underwriting standards and loan terms—and even on whether they make bridge loans repayable with the tax credit.

3. Local HFAs

Another source, if state HFA where buyer resides can’t help, might be the National Association of Local Housing Finance Agencies. Local HFAs are much like state HFAs but with jurisdictions limited to their locality. To learn whether there’s a local HFA in your area, call NALHFA at 202/367-1197.

4. FHA-approved Lenders

If buyer is unable to identify a state or local HFA or other governmental agency or nonprofit, buyer can tap bridge-loan assistance if buyer can work with a lender approved by the U.S. Department of Housing and Urban Development to originate FHA-backed loans. HUD maintains a database of FHA lenders on its Web site that’s searchable by a number of criteria including city, state, county, and service area.

In a difference with the assistance provided by state and local agencies or nonprofits, the bridge loans provided by private, for-profit FHA-approved lenders must be structured in the form of a personal loan or line of credit collateralized by the tax credit. The bridge loan cannot be structured as a second mortgage.

Also, although FHA allows buyers to use the bridge loan to cover the closing costs or to buy down the interest rate, buyers can use it for the down payment only after they’ve covered the 3.5 percent minimum that’s required on any FHA loan. Thus, buyers must come up with the 3.5 percent minimum down payment themselves or else tap another source of assistance for it. That can include gifts from family. Seller-funded down-payment programs are not permitted.

Since it’s the HUD-approved lender and not FHA itself that’s making the bridge loan, actual loan terms will vary. At a minimum, though, the bridge loan must meet certain restrictions, most of them imposed to weed out fraud or ensure borrowers are not borrowing more than what they can afford. These include:

  • Loans cannot result in cash back to the borrower.
  • The amount can’t exceed what’s needed for the downpayment, closing costs, and prepaid expenses.
  • If there’s a monthly repayment, it must be included within the qualifying ratios and, when combined with the first mortgage, can’t exceed the borrower’s reasonable ability to pay.
  • Payments must be included in the qualifying ratios, unless they are deferred for at least 36 months.
  • There can be no balloon payment required before 10 years.
  • Financing fee cannot exceed 2.5% of the tax credit

To read about $8,000 tax credit and other tax credit related posts   –  For details see ARCHIVES, February 2009 and March 2009, and 2009 – Library of Posts.


NOTE:  For details contact your lender

SOURCE: REALTOR Magazine, National Association of REALTORS

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Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchase a home before December 1, 2009 can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately. 

Homebuyers can claim the credit either on their 2008 tax return, or on their 2009 tax return next year. The amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000, or $150,000 for joint filers.

First-time homebuyers who already purchased a home in 2009 or are considering buying in the next few months  have several different ways to claim the $8,000 tax credit even if they already filed their 2008 tax return.

The tax filing options offered by IRS to claim the tax credit are:

·    File an extension. Taxpayers who have not yet filed their 2008 returns but are buying a home soon can request a six-month extension to October 15.  This step would be faster than waiting until next year to claim it on the 2009 tax return.  Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit.

·    File now, amend later. Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house in the next few months can file their return now and claim the credit later.  Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit.

·    Amend the 2008 tax return. Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.

·    Claim the credit in 2009 rather than 2008. For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when they file the 2009 tax return rather than claiming it now on the 2008 tax return. This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.


Q & A

How does a tax credit work?

Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax due. ($9,500 – $8000 = $1500)

What happens if the purchaser is eligible for an $8000 credit but their entire income tax liability for the year is LESS than $8,000, say, only $6000?

This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was $6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference between $8000 credit amount and the amount of tax liability. ($8000 – $6000 = $2000) Most taxpayers determine their tax liability by referring to tables that the IRS prepares each year.

It is important for homebuyers to know that they must complete the purchase and close, or take up residence in the case of new construction, by December 1, 2009 in order to be eligible to file for the credit. 


More detail about the $8,000 tax credit

Download  IRS First-Time Homebuyer Tax Form 5405

SOURCE: Internal Revenue Service, National Association of REALTORS, Dulles Area Association of REALTORS

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The Tax Credit was extended and expanded – see my November, 2009 blog 


The H.R. 1,  the “American Recovery and Reinvestment Act of 2009” –  $780 billion stimulus package was signed into law February 17, 2009.


These are the most important features of the tax credit:

  • The tax credit amount is increased to $8,000  (from lesser of 10% of cost of home OR $7,500)
  • The credit applies ONLY to homes purchased in United States and closed by December 1, 2009
  • The credit applies only to first-time homebuyers AND homebuyers who did not own a principal residence in 3 (three) years previous to the 2009 purchase – the three years is counted from the closing day of the last owed home
  • If married couple purchase a home, BOTH must be first-time homebuyers – regardless who is on the mortgage or the title
  • If a group, or unmarried purchase a home, only those eligible for the tax credit can claim it on the tax return: citizenship or tax id, first-time homebuyer, or did not own a home in the last 3 years
  • For Married Filing Separately, the credit is split evenly between the taxpayers, $4,000 each
  • The credit applies only to the principal residence – any single family residence (including condos, co-ops, townhouses, mobile homes, and boats if the boat is used as principal residence) that will be used as a principal residence by the purchaser
  • the $8,000 tax credit applies only to homes purchased from January 1, 2009 to December 1, 2009
  • Credit cannot be claimed on a home acquired by gift or inheritance
  • Credit cannot be claimed on a home acquired from a related person
  • The tax credit can be claimed on a tax return to reduce the income tax liability
  • See March, 2009 blog, Credit can be claimed on 2008 and 2009 tax returns
  • This is a true tax credit and does NOT have to be repaid by 2009 purchasers.
  • Buyers must keep the house for at least 3 (three) years, as a safeguard against investors and speculators
  • Investors can claim the credit, but ONLY if they do not own a primary residence (rent) and did not own a home in the last three years, but would like to purchase a rental property
  • If the tax credit is claimed on the tax return, but the house is held for LESS than 3 (three) years, the tax credit will have to be repaid to the IRS from the sale proceeds
  • DC homebuyers are eligible for the $8000 credit (In 2008, D.C. homebuyers had a separate, non-repayable $5000 tax credit available to them that had already been in effect for several years.)
  • Purchasers who finance their 2009 purchases with funds from a state/local housing bond authority are eligible for tax credit.
  •  This a true tax credit applied against the tax liability (not just income). It reduces or eliminates income tax liability for the 2009 year of purchase.
  • The tax credit is refundable.  The unused amount will be refunded by IRS as a check to the purchaser. The amount of the refund is computed as part of the 1040 tax return filing.
  • Example, taxpayer owes $6,000 minus $8,000 tax credit = $2,000 tax refund
  • Adjusted gross income cannot exceed $75,000 for Single ($150,000 on a joint tax return). 
  • Partial credit is available for income between $75,000 and $95,000 for single taxpayers, ($150,000 for joint tax returns) – for details contact your tax accountant.
  • The 10% of purchase price applies to homes costing less than $80,000. For example, any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home for $60,000, the credit would be $6,000.
  • The $7,500 tax credit applies to homes purchased between April 9, 2008 and December 31, 2008 AND it must be repaid (6.67% of credit or $500) each year for 15 years, starting with 2010 tax filing – the $7,500 tax credit is in essence an interest-free loan, it is NOT a true tax credit.


SUMMARY: First- time home buyers who purchase a home before December 1, 2009 can reduce their tax liability by claiming the  tax credit on their tax return. Any home buyer who did not owned a home since 2005 qualifies as a first-time home buyer. The $8,000 tax credit  does not have to be repaid if the purchased home is a primary residence for three years.  

Credit can be claimed on 2008 or 2009 tax return – see March, 2009 blog

Download  IRS First-Time Homebuyer Tax Form 5405


NOTE: Information is deemed reliable, but not guaranteed. For details contact your tax accountant and/or attorney.

SOURCE: National Association of REALTORS; Virginia Association of REALTORS

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