Everyday I get quite a few questions regarding the American Recovery and Reinvestment Act of 2009 and how it would apply to buying a home using VA financing.
For those of you that don’t know, this act was initially passed as a “tax credit” to first time home buyers up to $8000 dollars.
Many groups like the National Association of Realtors petitioned lawmakers to monetize the tax credit which would allow buyers to use the credit as a form of down payment.
Using a tax credit as down payment mainly benefits FHA borrowers.
With a VA loan, borrowers already have 100% financing in place. Conversely, the FHA requires purchasers to make a 3.5% down payment. In those cases, a monetized tax credit could be used to offset closing costs and related transaction fees.
Technically speaking – VA borrowers could use the tax credit to buy down the VA funding fee.
The traditional VA funding fee is 2.15% for 100% financing. If a veteran puts more than 5% down in the transaction, the VA funding fee drops to 1.25%. For this to work with as little down payment as possible, the home purchase price would have to be $160,000 or LESS. Furthermore, this strategy only makes sense for Veterans intending to put the 5% down regardless of the situation. Otherwise, putting 5% down to save less than 1% in a VA funding fee is crazy.
A word of caution to all VA buyers.
Just because HUD may allow buyers to use tax credits as down payments, your bank may not. So, regardless of what people tell you, the BANKS make the rules. If you plan on using the tax credit in addition to your down payment, consult with your bank first. Failing to do so could result in a rude awaking. At the time of this writing, most banks DO NOT have a system in place for honoring down payment tax credits.
For your reading enjoyment I have also attached:
- hud_mortgagee_letter_2009-15. This includes IRS form 5405 which is used to file for the home buyer tax credit.
- fha_mortgagee_monetization_explanation
Here is also a brief excerpt taken from the National Association of Realtors website regarding the tax credit.
Who Qualifies?
First-time home buyers who purchase homes between January 1, 2009 and December 1, 2009.
To qualify as a “first-time home buyer” the purchaser or his/her spouse may not have owned a residence during the three years prior to the purchase.
Which Properties Are Eligible?
The 2009 First-Time Home Buyer Tax Credit may be applied to primary residences, including: single-family homes, condos, townhomes, and co-ops.
How Much Will the Credit Be?
The maximum allowable credit for home buyers is $8,000. Each home buyer’s tax credit is determined by two factors:
The price of the home—the credit is equal to 10% of the purchase price of the home, up to $8,000.
The buyer’s income—single buyers with incomes up to $75,000 and married couples with incomes up to $150,000—may receive the maximum tax credit.
If the Buyer(s)’ Income Exceeds These Limits, Can He/She Still Get a Credit?
Yes, some buyers may still be eligible for the credit.
The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $95,000 for singles and over $170,000 for couples are not eligible for the credit.
Will the Tax Credit Need to Be Repaid?
No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during the three-year period, the credit will be recouped on the sale.
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{ 23 comments… read them below or add one }
The best information i have found exactly here. Keep going Thank you
Do you know of any exceptions currently on the repayment of the $8000 (3 year rule if you move) if you are in them military and you get orders to move to a different military base.
Good afternoon Sir,
Tax credits issued in 2008 were considered interest free loans and required repayment.
Tax credits for 2009 are simply tax deductions. and are not required to be paid back provided you occupy the home as a primary residence for 36 months. The IRS is saying that moving prior to the 36 month period will require repayment.
FYI For Veterans “Forced” to move prior to the 36 months….
There is no tax law on record for veterans that are relocated for active duty and forced to sell prior to the 36 month benchmark.
So, keep your fingers crossed.
Ok let me see if I understand if I file for the $8000 credit with Federal income tax return using form 5405, I get the $8000 refund credit and in 2 years I get transferred to a base in another State, so we need to sell the house and move the family to the new state. I read it as selling my primary residence so I will need to pay the money back to the govt.
Thanks again for any info you have
SEE BELOW: This is what I am reading on the IRS website (copy/pasted directly from IRS website) about repaying the $8000 if I have to sell my house within 3 years
“Q: When must I pay back the credit for the home I purchased in 2009?
A: Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009. The obligation to repay the credit on a home purchased in 2009 arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.”
Q. If I claim the first-time homebuyer credit for a purchase in 2009 and stop using the property as my principal residence before the 36 month period expires after I purchase, how is the credit repaid and how long would I have to repay it?
A. If, within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full amount of the credit is due at that time the income tax return for the year the home ceased to be your principal residence is due. The full amount of the credit is reflected as additional tax on that year’s tax return. Form 5405 and its instructions will be revised for tax year 2009 to include information about repayment of the credit.
Hello Daniel,
There is no answer to your question.
The IRS has not posted any tax law for active duty veterans forced to move prior to reaching the 36 month bench mark.
Will there be concessions? Probably so…
What can you do now? Hurry up and wait. There is nothing in writing from the IRS because the topic is still very new.
PS. If your going to buy in 2009- Keep close tabs on all your documents. That way, if the IRS does cut Veterans a break, you’ll have everything needed to qualify.
PSS. Join the blog and I will post updates as they happen!
You have been a great help thanks for your research hopefully I will not have to deal with this problem but with the military it is always unknown. But at least I know this could happen and won’t be surprised.
What qualifies you as a first time home buyer: the previous home being your primary residence for 36 months exactly or the previous home being owned by you for exactly 36 months before you close on the purchase of a new home? Please confirm because if I have to push the closing date of my new purchase to meet the requirements, I will. Thanks.
Hello Kim,
According to the US Dept. of Housing, the definition of a first time home buyer is:
An individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase of the property. This includes a spouse (if either meets the above test, they are considered first-time home buyers.
That sounds great, because my closing date for the new home is a week after my 3 year purchase date of my last home. So this should indeed qualify, right? The new home will become my primary residence and I am renting the last home, are there stipulations on that?
My husband and I just bought our first house 6 weeks ago with a VA loan. Since we did not use an FHA loan will we still get the $8,000 tax credit?
Samantha,
Your in luck!! It does not matter “HOW” you purchased your home so long as you “QUALIFY” as a first time buyer. If you read through my past comments, I posted the government definition of a first time home buyer. If you meet this criteria… your in!
In order to receive the benefit you need to print out the IRS form that I attached in my article and submit that during tax time.
Best regards,
Quin
What if my husband is deployed for the year of 2009 and we will not buy first house until he returns in 2010? Is there any special exception for deployed military to be able to take advantage of the tax credit when they return from deployment?
Hello Linda,
Let me first extend my thanks to your husband for his service to our country!
Although you pose a great question, the IRS has not provided any further information. I can’t speculate on what the future holds. Knowing how things work, I would bet our government does not start focusing on 2010 politics until 2010.
Best regards,
Quin
I also want to know that question, My husband is currently deployed in Iraq , we so want to take advantage of the tax credit.. They should really extend it for deployed soldiers of 09.
Nicole,
I couldn’t agree more. Let’s hope our government see’s it that way too!
We just purchase a home a month ago using the VA Loan. This is actually my first home and my wife owned another home. I know I dont qualify for the $8000 Tax credit intially. But what are my chances with the extension, Do I still fall under that same criteria?
Hello Corey,
Thanks for the question.
There is some good news coming down the pipeline in regards to the new tax credit. Unfortunately, much of what we hear is still speculation, and without having any solid details from the IRS I would suggest you consult with your CPA or Tax attorney in regards to this issue when you file. After all, your tax preparer is responsible for filling out these forms on your behalf and they should have the tax code necessary to make this call.
I hope this helps.
I’m currently mobilized in Des moines, IA. What if I buy a house in two weeks and only live in it for a month and then I find out that the army will be moving me to Texas. I’m serving under title ten orders. Will the house still be consideredmy primary residence and eligible for the tax credit?
I found this on the IRS website dealing with first time home buyers under FAQs:
There are new benefits for members of the military and certain other federal employees:
Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit. Thus, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2011. If a binding contract is entered into by that date, the taxpayer has until June 30, 2011, to close on the purchase. Members of the uniformed services, members of the Foreign Service and employees of the intelligence community are eligible for this special rule. It applies to any individual (and, if married, the individual’s spouse) who serves on qualified official extended duty service outside of the United States for at least 90 days during the period beginning after Dec. 31, 2008, and ending before May 1, 2010.
In many cases, the credit repayment (recapture) requirement is waived for members of the uniformed services, members of the Foreign Service and employees of the intelligence community. This relief applies where a home is sold or stops being the taxpayer’s principal residence after Dec. 31, 2008, in connection with government orders received by the individual (or the individual’s spouse) for qualified official extended duty service. The credit is still allowable even if this happens during the year of purchase. Qualified official extended duty is any period of extended duty while serving at a place of duty at least 50 miles away from the taxpayer’s principal residence (whether inside or outside the U.S.) or while residing under government orders in government quarters. Extended duty is defined as any period of duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.
Hello Carlos,
All the information that is available via the IRS is posted to this site. Your best bet is to check with you tax adviser or CPA on the latest developments.
We moved to Florida, on orders, in Sept. 2005 and bought a house. In 2009 we got orders to move to Texas. We purchased our house in July 2009. Are there any provisions for families that have no choice but to move due to orders? I know there are some for repayment of the credit, but do we qualify for anything?
Thanks
Hello Brittany,
I have read through the IRS guidelines many times and I have yet to see any specific provisions for military personnel. If you purchased and closed on a home in July 2009, then you should qualify for the tax credit based on that scenario alone. Your best bet is to check with your accountant this year when you file. They would have the most updated information, and know exactly what you would technically qualify for; especially if you have other extenuating circumstances to sort through.
Hey Scott,
That was a great post! Thanks for helping out!