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FAQ: Can the first-time homebuyer credit be claimed in advance of a purchase?
February 02, 2009

No. Many individuals may be considering buying a new home in 2009 as home prices continue to drop in many areas across the country. They may also be wondering if they can claim the $8,000 first-time homebuyer tax credit before actually purchasing the home. Although this might generate a refund you could use as a down payment, the IRS will not allow you to claim the credit in advance of a purchase.

Homebuyer credit

The first-time homebuyer credit is a temporary tax incentive. As its name implies, it is targeted to first-time homebuyers.

Congress created the first-time homebuyer credit in 2008. At that time, the maximum credit was $7,500 and it had to be repaid. The credit was more like a loan than a true credit even though repayment was interest-free. In the American Recovery and Reinvestment Act of 2009, Congress increased the maximum credit to $8,000. Congress also removed the repayment requirement for homes purchased between January 1, 2009 and December 1, 2009. With repayment no longer required, more taxpayers are expected to take advantage of the credit.

No advance claims

You cannot claim the first-time homebuyer credit in anticipation of a home purchase that has yet to happen. Taxpayers qualify for the credit when they finalize the purchase of their home, which for most purchasers occurs at the time of closing, the IRS explained.

Individuals constructing a new home may be eligible for the first-time homebuyer credit. Like purchasers of existing homes, they cannot claim the credit in advance. For new construction, the IRS explained that the purchase date is the first date that the taxpayer occupies the home.

Taxpayers claim the credit on Form 5405, First-Time Homebuyer Credit, which clearly asks for "date acquired" (past tense). A similar credit, the District of Columbia homebuyer credit, requires an actual purchase. Effectively, such language and the IRS's decision to prohibit the credit to be used in anticipation of a purchase, precludes taxpayers from using a refund from the credit as a down payment.

Amended returns

Individuals may claim the $8,000 credit for 2009 purchases on their 2008 or 2009 returns. If you filed your 2008 return without claiming the credit, you may want to consider filing an amended return. Alternatively, you can wait and claim the credit on your 2009 return, which you will file in 2010.

Other criteria

Not everyone can claim the first-time homebuyer credit. There are income limitations. Additionally, a taxpayer cannot have owned and used a home as his or her principal residence in the past three years. However, there are some exceptions. The credit also may be allocated among unmarried taxpayers. Domestic partners and family members who purchase a home together may generally allocate the credit using any reasonable method.

If you are purchasing a home in 2009, please contact our office. You may be eligible for this valuable tax break.

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