First-time Homebuyer Deductions & Standard Deductions
The first-time homebuyer tax credit and the standard deduction provide two ways to help reduce a taxpayer's taxable income. The two deductions do not overlap, and taking one deduction does not mean that you cannot take the other. Most taxpayers are eligible for the standard deduction, but homebuyers must meet certain qualifications before they can take the first-time homebuyer tax credit.
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First Time Homebuyer Deduction
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Two types of homebuyers qualify for the first-time homebuyer tax credit . The Internal Revenue Service (IRS) defines a first-time homebuyer as someone who did not own a main home during the three years before the date they purchase their new home. These homebuyers must enter into a binding purchase contract by April 30, 2010 and close by September 30, 2010. The maximum credit is $8,000 for first-time buyers.
Long-time residents are people who have owned and lived in the same home as their primary residence for any five consecutive years during the eight years that ends the date they purchase their new home. Long-time residents must enter into a binding purchase agreement by April 30, 2010 and close by September 30, 2010 to receive a maximum credit of $6,500.
Standard Deduction
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Taxpayers have the option of itemizing certain expenses or claiming a standard dollar amount as a reduction of taxable income. Taxpayers should take the larger of the two amounts for the greatest reduction in their taxable income. The standard deduction amount varies depending on your filing status. For the 2010 tax year, the standard deduction is $11,400 for married people who file a joint return, $8,400 for those claiming head of household status and $5,700 for single people or married taxpayers filing separate tax returns.
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Additions to the Standard Deduction
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People who are age 65 or older and those who are blind increase their standard deduction by $1,100. Use the Standard Deduction Worksheet in the Form 1040 Instruction Booklet to calculate these additions to your deduction.
For 2010, you can increase the amount of your standard deduction due to a net disaster loss if the government declared a federal disaster after 2007, and if the disaster occurred before 2010. You can also increase the standard deduction to include sales tax paid on a vehicle purchased after February 16, 2009 and before January 1, 2010, if you paid the sales tax in 2010. Use Schedule L -- Standard Deduction for Certain Filers to figure your standard deduction in these situations.
Restrictions on the Standard Deduction
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Certain people cannot claim the standard deduction, and must use Schedule A -- Itemized Deductions, instead. If you and your spouse file tax returns separately and your spouse itemizes deductions, you must itemize as well. People who are nonresident aliens or dual status aliens during any part of the tax year, and those who file tax returns covering less than a full year due to changes in their accounting period cannot claim the standard deduction.
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References
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