Taking advantage of the federal government's homebuyer tax credits could get you up to $8,000 - if you don't delay. You'll need to enter into a legally binding purchase contract by April 30, 2010, and close on the home by June 30, 2010 (and don't even think about claiming the credit before your purchase actually closes). With about a month and a half left to take action, here are your options to qualify for the credit.

IN PICTURES: Financing For First-Time Homebuyers

First-Time Homebuyer
As long as you haven't owned your primary residence in the last three years, you are considered a first-time homebuyer. If you did own your primary residence, but it was outside the United States, you still qualify. For married couples, each spouse must meet this criterion. For two unmarried individuals purchasing a home, only one need qualify (and that one should claim the credit). The credit is worth 10% of the purchase price, up to a maximum of $8,000.

Long-Time Homeowner
Because of changes to the homebuyer tax credit made in November 2009, long-time homeowners can now qualify for a tax credit as well. Homeowners who have lived in the same home as their principal residence for five consecutive years out of the last eight years can claim a tax credit of $6,500, if they choose to buy another home.

Some married couples are not eligible for the long-time homebuyer credit because the credit only applies to married couples where both spouses have lived in the same house together for five consecutive years out of the last eight years.

Long-time homeowners do not have to sell their current residence to qualify for the credit. They could buy a new home and keep the old home as long as the new home was used as their principal residence. They could then rent out the old home or use it as a second home. (We give you seven guidelines to help you keep more of your money in your pocket in Tax Tips For The Individual Investor.)

Buy New Construction
Under both programs, as a first-time buyer or long-time owner you do not have to purchase an existing home to qualify for the credit. You can claim the credit on the purchase of a new home, as long as you have signed a legally binding construction contract by April 30, 2010, and occupy the home by June 30, 2010. The date of purchase for a new home is considered to be the date the homebuyer occupies the new home.

Make Sure You Qualify
Whether you're a first-time homebuyer or long-time homeowner, you'll have to meet the following criteria to claim the credit.

  • You must be at least 18 and you must not be claimed as a dependent on anyone else's tax return to qualify for the credit.

  • You can't purchase the home from a close relative, which the IRS defines as a parent, grandparent, spouse or child.

  • The home's purchase price cannot be higher than $800,000.

  • Your income can't be too high. This credit applies to single taxpayers with modified adjusted gross incomes (MAGI) up to $125,000 and married taxpayers with MAGI up to $225,000. Single taxpayers with income between $125,000 and $145,000 and married taxpayers with income between $225,000 and $245,000 are eligible for a reduced credit. (Just because you are in love doesn't mean that a joint return is best for both of you. Check out Happily Married? File Separately!)

  • Houses, condos, townhomes, co-ops, house trailers and houseboats are eligible as long as they will be used as the buyer's primary residence. Thus, vacation homes, second homes and investment properties are not eligible for the credit.

  • Some government employees serving overseas, such as members of the armed forces, have an additional year to qualify for the credit.

Claim the Credit
You'll have to attach form 5405 to your return and you must file a paper return (no e-filing allowed). The IRS also requires you to attach your HUD-1 or other settlement statement (if one of these forms wasn't involved in your purchase transaction, for mobile homes, a detailed retail sales agreement will suffice, and for new construction, a detailed certificate of occupancy will work). Make sure to sign whichever document you submit if it doesn't already contain your signature.

Long-time homeowners must also attach their proof of long-term homeownership in the form of five consecutive years' worth of property tax statements, mortgage interest statements or homeowner's insurance statements.

For homes purchased in 2010 (before the 2010 deadline), homebuyers can claim the credit on either their 2009 or 2010 tax returns. Someone who purchased a home on April 30, 2010, would not have to wait until 2011 to claim the tax credit on her 2010 tax return; instead, she could file an amended 2009 tax return to get the credit sooner. Tax software programs can help you file an amended return - why wait longer than you have to in order to get the money?

Keep Your Head
Unlike the 2008 tax credit of up to $7,500, which has to be repaid in 15 equal installments starting with the taxpayer's 2010 tax return, the 2009 and 2010 tax credits do not have to be repaid unless you sell the home within 36 months of purchase. In that case, you would have to repay the entire credit.

As nice as an extra several thousand dollars may sound, don't let it cloud your judgment when shopping for a home. In the long run, it's more important to buy the right home than to get some money from the government. (The receipts you cram into your wallet could be replaced with cash come tax season. Don't miss 10 Most Overlooked Tax Deductions.)

Still feeling uninformed? Check out last week's Water Cooler Finance to see what's been happening in financial news.

Related Articles
  1. Taxes

    6 Tax Breaks That Anyone Can Claim

    Many can be applied to an individual’s return, and you don’t need to be a financial genius to claim them. Here are six credits or deductions that could be yours for the taking.
  2. Taxes

    7 Expenses You Won’t Believe Are Deductible

    You may be surprised at some of the things that qualify as legitimate tax deductions. Here are seven that are especially quirky.
  3. Taxes

    6 Tax Myths Everyone Should Know

    The notion that large refunds are good is but one of many enduring tax myths. Here are five more you should know.
  4. Home & Auto

    6 Neighborhood Red Flags

    There are some qualities you can’t discover about a neighborhood until after you’ve moved in. But there are ways to scout out red flags ahead of time.
  5. Professionals

    7 Tips for Year-End Financial Planning

    There is always a rush to get financial planning tasks done at year's end. Here are some tips to help ease the crunch.
  6. Professionals

    How to Navigate Taxable Mutual Fund Distributions

    It's almost time for year-end capital gains distributions for mutual funds. Here's how to monitor them and minimize their tax impact.
  7. Investing

    How ETFs May Save You Thousands

    Being vigilant about the amount you pay and what you get for is important, but adding ETFs into the investment mix fits well with a value-seeking nature.
  8. Retirement

    5 Ways to Use Your Home to Retire

    Retirement is going to cost a lot, and for homeowners who face a shortfall, their home can be a source of income. From downsizing to renting, here's how.
  9. Professionals

    How to Protect Your Portfolio from a Market Crash

    Although market crashes are usually bad news for your portfolio, there are several ways to minimize losses or even profit outright from market movement.
  10. Taxes

    Here's How to Deduct Your Stock Losses From Your Tax Bill

    Learn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
  1. What is the annual contribution limit for a 529A account?

    Contributions to a 529A plan are limited up to the annual gift tax exclusion limit, currently $14,000 a year in after-tax ... Read Full Answer >>
  2. Can I borrow from my annuity to put a down payment on a house?

    You can borrow from your annuity to put a down payment on a house, but be prepared to pay an assortment of fees and penalties. ... Read Full Answer >>
  3. Why is Andorra considered a tax haven?

    Andorra is one of many locations around the globe considered a tax haven because of its relatively lenient tax laws. However, ... Read Full Answer >>
  4. Can I take my 401(k) to buy a house?

    Once you reach 59.5, you can use the funds in your 401(k) retirement savings account to buy a house or any other expense ... Read Full Answer >>
  5. Can I take my 401(k) to buy a house for my children?

    Under the standard regulations for 401(k) retirement savings plans, you may elect to withdraw funds from your 401(k) for ... Read Full Answer >>
  6. How is market value determined in the real estate market?

    Anyone who has ever tried to purchase or sell a home has probably heard a lot about the property's fair market value, or ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!