Buy Your First Home and Get Money from Uncle Sam
Step-by-step help for filling out Form 5405 the First-Time Home Buyer Credit
Owning a home is the American dream. Signing those papers and knowing that spot of earth is yours is a great feeling. If it’s the first time, it’s even better. After the mortgage crisis a few years ago, people became very wary of buying a first home, so the government thought they’d try to help motivate people to get out there and secure their own four walls. The Worker, Home Buyer and Business Assistance Act of 2009 is a well-kept secret that allows first-time home buyers to deduct up to $8,000 from their income. That is a huge deduction.
Now don’t order the Dom for your house-warming party just yet. There are rules and requirements to claim this deduction, so read on to find out if you qualify.
First, the new home has to be your primary residence, meaning you bought it to live in it. You also need to have purchased your home between January 1, 2009 and April 30, 2012 and you have to have closed escrow on your new home by September 30, 2012. Single filers who made more than $145,000 and those who file as married,filing jointly who made more than $245,000 will not qualify for this credit. Also, if you are married and your spouse has already bought a home, then you will not qualify, even if it is your first purchase.
How to Claim
If you do fulfill the requirements, file Form 5405 (First-Time Homebuyer Credit and Repayment of the Credit) to apply. This form has four sections. The first section is where you enter your general information. The second section is where you fill in the information about the amount of your credit. Sections three and four are for people who claimed the credit and have been asked, for whatever reasons, to repay it. We will not be covering that in this article.
Enter your new address on Line A if it is not the address you entered on page 1 of your Form 1040. Enter the date of purchase on Line B. If the date of purchase is prior to May 1, 2012, you can move on to Line E, if not, enter the exact purchase date on Line C. If you purchased between April 30, 2012 and October 1, 2012 and you entered the contract before May 1, 2012 and closed escrow before September 1, 2012, then you can move on to Line E.
If you are a member of the armed forces or are an employee in the intelligence community you may have been on extended duty outside of the U.S. for 90 days between December 31, 2008 and May 1, 2012. If so, then Uncle Sam wants to reward you for your service to our country and give you a break on the eligibility dates.
You have to fill out Line E so that the IRS can be sure you aren’t playing musical house and transferring the family home from one name to another to claim the credit. We are going to assume that you’re an honest person and move on to Line F, where you let the IRS know the tax year in which you want to claim your credit.
Enter the purchase price of your home on Line 1 and then calculate 10% of the purchase price and enter that amount on Line 2. If you are a first-time home buyer, enter $8,000 (single) or $4,000 (married, filing jointly) on Line 3. If you bought a new home and lived in your current home (long-time resident) for any five year period during an eight year period (ending on the date you purchased the new home), enter $6,500 (single) or $3,250 (married, filing jointly) on Line 3.
On Line 4, enter either the amount on Line 2 or 3, whichever is smaller.
Enter your adjusted gross income (AGI) on Line 5. If you don’t know how to calculate your AGI, click here.
If the date of purchase on your new home was prior to November 7, 2009 enter $75,000 (single) or $150,000 (married, filing jointly) on Line 6; after November 6, 2009, enter $125,000 (single) $225,000 (married, filing jointly). If your AGI is higher than the amount you entered on Line 6, enter that on Line 7. If not, enter 0 on Line 9 and move on to Line 10.
If your AGI is higher than the amount you entered on Line 6, divide Line 7 by $20,000 and enter that as a decimal on Line 8. Multiply Line 4 by Line 8 and enter the result on Line 9. Then subtract Line 9 from Line 4 and enter that amount on Line 10 to claim your credit.
Make sure to include the amount you entered on Line 10 when you file your 1040 or any other tax forms.
$8,000 is a lot of money for most of us. It could mean new pipes, a new roof or maybe an addition for a new family member. Maybe you just want a pool table or a desk you didn’t screw together in college. The possibilities are endless. Some credits aren’t worth the paperwork, but this one really is. Form 5405 is easy to fill out, so why wouldn’t you want to claim that credit and buy a car to match your house?