Tax Tips for First-Time Homebuyers and Long-Time Residents

(photo by Jodi-Tatiana Charles/La Capoise)

by Cianna Ferrer, CPA
March 26, 2010

The First-Time Homebuyer Credit is unique in the history of US tax law and if you qualify, you should take advantage of the opportunity. Individuals who purchase a home between November 7, 2009 and June 30, 2010 (with a binding written contract by April 30, 2010), generally qualify for this credit if they haven't owned a principal residence in the previous three years, or have owned a principal residence for five consecutive years. First-time homebuyers may qualify for $8,000 and long-time residents may qualify for $6,500 (subject to income phase out rules).

Here are a few items to keep in mind while preparing your tax returns:

• If the purchase price of your home exceeds $800,000, you cannot claim the credit.
• You must be 18 years of age and cannot purchase the home from someone related to you.
• If you are filing Married Filing Separate, you can claim a $4,000 credit ($3,250 if a long-time resident), but your spouse is not allowed to claim any part of the credit on his or her return.
• You are required to paper file your tax return and attach the HUD Settlement Statement as proof of purchase. It may help to attach the Purchase and Sale Agreement to avoid delays.
• If you are claiming the credit as a long-time resident, you must also attach copies of one of the following items: Form 1098 Mortgage Interest Statement, property tax records, or homeowner's insurance records for the previous five consecutive years.
• If you are closing after April 15, 2010, make sure you either file an extension for 2009 taxes, amend your 2009 tax return after the purchase, or claim the credit on 2010 taxes.

If you are claiming the First-Time Homebuyer Credit for 2009 or 2010, it is important that your tax return is filed properly with necessary documentation or the IRS could disallow the credit.

Also note: the Nonbusiness Energy Property Credit has been reinstated for 2009 and 2010. If you intend on making energy efficient improvements to your new home, you can claim a credit up to 30% of the cost of improvements, limited to a $1,500 credit. These improvements can include high-efficiency heat pumps, air conditioners, water heaters, windows, doors, insulation materials, and roofs. With so many changes in the tax law this past year, it is more important than ever to consult with a tax professional before filing your tax return.

Written By: Cianna A. Ferrer, Accountant with Weiner and Rice, PC in Newton, MA