The Tax Attic with Jerry Coon – July 23, 2009


Jerry Coon, Enrolled Agent
Jerry Coon, Enrolled Agent

First-time homebuyer credit needs
to be clarified

Over the past few weeks, we have received a number of calls requesting further information and clarification on the federal government’s first-time homebuyer credit. The confusion relates to the differences between the credit that was available for homes purchased in 2008 and the credit available for homes purchased in 2009.

Federal Form 5405 is filed to claim either of the credits. However, if the home was purchased in 2009, there is a box that is checked indicating that the home was purchased between January 1, 2009 and November 30, 2009. If this box is checked, the amount of the credit is $8,000. If this box is not checked, the home is presumed to have been purchased between April 8, 2008 and December 31, 2008.

The amount of the credit for these 2008 purchases is $7,500. The 2009 credit is $8,000 and the 2008 credit is $7,500 for a difference of only $500, an apparently small amount. But the main difference is much more than the $500.

The 2008 credit is really a loan and must be paid back at the rate of $500 per year over 15 years. The $500 will be considered an added tax beginning in the 2010 tax year. We are presuming there will be a line added to the tax return where the $500 will be entered. In our world of phenomenally high-powered computers, the Internal Revenue Service (IRS), without a doubt, will track this credit and will expect the $500 to be paid each year. There will be no interest charged on the $7,500. It just has to be re-paid at the rate of $500 per year. If the taxpayer sells the house before the full amount of the loan has been repaid, the unpaid remaining amount must be paid on the next filed tax return.

For houses purchased in 2009, the $8,000 credit is not a loan. It is a true refundable credit and does not have to be re-paid. The purchasers must keep the house as their primary residence for the next three years after the purchase, or the entire $8,000 must be paid back. There is no proration of the $8,000. Either the purchasers get the full credit to keep or they have to pay back the full credit.

The basic requirement of qualifying for either of the credits is exactly the same. The purchasers must not have owned a principal residence for the three full years before the date of closing on the new residence.

According to the IRS, there has been an issue with taxpayers claiming the credit when they have also claimed mortgage interest and/or property tax for a principal residence on tax returns filed within the last three years. Apparently, out of the first few 100,000 tax returns claiming the first-time homebuyer credit, 10 to 15 percent of those returns were found to not qualify for the credit. In these bogus claims, while it is true that the purchasers did purchase a new personal residence, they also owned a personal residence in the prior 36 months. Owning a personal residence in that prior 36-month period specifically disqualifies the purchasers from claiming the credit on the new residence purchase.

Another snafu of sorts that has developed involves when the credit can be claimed. Even though the “Date Acquired” must be entered on the Form 5405 and there is a notation to “see instructions,” taxpayers are not reading those instructions. The instructions note that the credit cannot be claimed before the date of closing. Taxpayers are not allowed to anticipate a closing and file for the credit, hoping to use the credit as a down payment. The closing must come before the credit is claimed. Evidently, the IRS is checking all claims to make sure a closing has happened before the claim is made.

One further clarification must be made. If a taxpayer’s closing occurred in 2009, the taxpayer has the choice of claiming the $7,500 credit or the $8,000 credit. If the taxpayers originally claimed the $7,500 credit, they may change their mind and, by amending their return, the taxpayer may elect to claim the $8,000 credit. This also works in reverse in that the $8,000 credit can be changed to the $7,500 credit via an amended return.

The first-time homebuyer credit is a great deal. However, before filing for the credit, make sure you qualify for the credit. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent. He owns
Action Tax Service on Northland Drive in Rockford.
His e-mail address is

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