The early 2008 credit is an interest-free loan in the amount of up to $7,500 and, in most cases, must be repaid in installments on the homeowner's taxes each year. Homeowners who purchased their homes in 2009 may qualify for up to $8,000 in a tax credit. The homeowner cannot claim the credit until after the closing. However, if a contract dates before or on May 1, 2010, and the closing occurs before or on July 1, 2010, the homeowner can claim the credit.
The first-time homebuyer credit is either a tax credit or loan for individuals or married couples who have purchased a home between April 2008 and May 2010. The credit is 10 percent of the purchase price, not exceeding $8,000. Homebuyers may be eligible for the credit even if they don't qualify for a mortgage and use owner financing.
First-Time Homebuyer Credit
According to the IRS, a buyer qualifies for the first-time homebuyer credit if he has a seller financing arrangement, such as a contract for deed, an installment land sale contract or a long-term land contract. Even if the seller keeps the title to the property, the buyer can claim the credit if he obtains "the benefits and burdens" of ownership. The benefits and burdens include several factors, such as the right of possession, the right to obtain the property title upon full payment of the purchase price, the right to maintain the property and make improvements to it, the obligation to pay property taxes and to purchase homeowners' insurance, and the risk of loss. Property purchased from a close relative, such as spouse, child, grandchild, parent or grandparent, does not qualify for the credit.
To qualify for the first-time homebuyer credit, an individual must not have owned a principal residence within three years prior to the date of purchase. However, under a special rule, buyers who purchase a replacement home after Nov. 6, 2009, can claim the credit if they owned and used the previous residence for at least five consecutive years of the eight-year period that ends on the day they purchase the replacement home. Homebuyers must use the property as a primary residence. Vacation homes and rental properties do not qualify. A travel trailer qualifies, as long as it's affixed to land.
Claiming the Credit
To claim the credit, a homeowner should file IRS Form 5405, First-Time Homebuyer Credit along with his return. If a taxpayer has already filed a return without claiming the credit, he can amend the return by filing Form 1040X along with Form 5405. He should submit the required supporting documentation as stated in the instructions to these forms. The processing time for amended returns can be eight to 16 weeks. The IRS may contact the homeowner within this time frame.