Time Running Out On Homebuyer Tax Credit

There is a potential to save thousands of dollars but time is running out - if you're thinking of taking advantage of the government's homebuyer tax credits you must have a contract to purchase a home by the end of this month.

First time homebuyers can get a credit of up to $8,000.

This has pushed about 900,000 additional buyers into the market, said Lawrence Yun, chief economist for the National Association of Realtors, a trade group. The additional stimulation has helped stabilize home prices, he added.

"It is laying the foundation for more normal housing market conditions," Yun said, "and helping assure that we have a sustainable economic recovery as homeowners don't see further destruction of their wealth."

The government also offered a tax credit to long-time residents who buy a new principal residence -- no credits for vacation homes. They're eligible for a credit of up to $6,500.

If you're convinced a new home may be in your future, consider some of the basic rules outlined in the tax credit.

WHO QUALIFIES

First-time homebuyers

To qualify as a first-time homebuyer, you must not have owned a home in the last three years. The tax credit is 10 percent of the purchase price of a home up to a maximum of $8,000. This applies to a single taxpayer or a married couple filing a joint return. Married couples filing separate returns qualify for half that amount. The $8,000 credit applies to sales in 2009 and through the end of April. Homes bought in 2008 also get a tax credit, but the rules are different.

Of course, your particular situation may not be so clear cut.

Long-time residents

To qualify as a long-time resident, you must have owned and used the same home as your principal residence for at least five consecutive years of the eight-year period ending on the date you bought your new home. The maximum credit is $6,500 for a single taxpayer or a married couple filing a joint return, or $3,250 for a married couple filing separate returns.

THE DEADLINE

You must enter into a binding contract to buy a home before May 1, 2010, and close before July 1, 2010. If you're building a home, the purchase date is considered to be the date you first occupy the home.

HOW TO GET THE CREDIT

The credit is claimed on IRS Form 5405, First-Time Homebuyer Credit, which was revised in December. It must be filed with your 2008, 2009 or 2010 federal income tax return, depending on which year you're claiming the credit. If you have already filed a 2008 or a 2009 tax return without claiming the credit, but bought a home that qualifies, you can amend your return to claim the credit using Form 1040X with the December 2009 Form 5405 attached.

Certain additional supporting documents will be required to be filed with your tax return, including a copy of the settlement statement used to buy the home or a similar document.

Those seeking as credit for long-time residents will need to prove they have lived in their home for five consecutive years by providing mortgage interest statements, property tax records or homeowner's insurance records for five consecutive years.

INCOME LIMITS (for full credit)

Purchases after Nov. 6, 2009:

• Single taxpayers - up to $125,000
• Married couples filing jointly - up to $225,000

Purchases before Nov. 7, 2009:

• Single taxpayers - up to $75,000
• Married couple filing jointly - up to $150,000

The IRS uses your modified adjusted gross income, which for most people is the adjusted gross income on your tax form with student loan, tuition and fee deductions added back in.

On the Web:

IRS scenarios and how they effect the homebuyer rules

Additional questions IRS on its Web site