January 19, 2009 | Posted by Harriet Brackey at 11:36 AM
Here are several of the questions you sent in last week -- and a long answer. The new tax credit was a very popular subject. And, you can still send in a question. Just use the form to the right.
You mentioned the $7,500 tax credit for first-time home buyers. Does that apply to purchases last year or this year?
On that first-time home buyer tax credit, what form do I take it on? The 1040?
On the tax credit for first-time home buyers, is that a one-time credit when purchasing or is it an annual thing?
This is our first time buying a home in Florida. Would we get that credit? We own a home in North Carolina.
First, let?s be truthful.
The First Time Home Buyer Credit which became law last year is not only for first-time home buyers and it?s not really just a credit.
?Credit is a misnomer. says Gil Charney, principal tax researcher at the Tax Institute at H&R Block. Because you do have to pay it back.?
Here?s how it works, according to Charney and information from the IRS:
-The credit is for up to $7,500 or 10 percent of the purchase price.
-You take it on Form 5405.
-It?s a federal income tax credit. So it applies to homes bought anywhere in the nation.
-It is refundable. This means, if you buy
a home and take this credit, you may be getting a big refund down the road.
-?First Time? does not mean never. If you have owned a home within three years before your date of purchase, then you don?t qualify. But if it?s been longer than that, you do.
-It applies to purchases between April 9, 2008 and through June 30, 2009.
-If your are building a house, you have to occupy it by June 30 to qualify.
-Vacation homes and rental property do not qualify. It has to be your principal residence.
-It must be repaid.
-The government will be tracking this over the years. To repay the credit, you gradually add one-fifteenth of the credit amount to your tax liability over 15 years, starting two years after you first take the credit. If you took a $7,500 credit in 2008, you would begin adding $500 a year to the amount of tax you owe starting in 2010.
-If you sell the house and move before 15 years have passed, you have to pay back the remainder of the credit on your taxes for the year in which it was no longer your residence.
-People with high incomes won?t get this credit. The credit begins to phase out for singles at $75,000 and for married couples filing jointly at $150,000. There is no credit for singles whose adjusted gross income is more than $95,000 and marrieds, above $170,000.