Home Owner Tax Credit Guide

8/14/2019 Home Owner Tax Credit Guide

1/22

Guide to

Homeowner Tax Credits

Copyright 2009 LendingTree All Rights Reserved

The All New

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Guides for Todays Lifestyle


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Contents

The Basics of New Tax Credits 1

Types of 2009 Tax Credits 2

Basics of the Home Buyer Tax Credit 3

Rehabilitation Tax Credit Basics 4

New Changes to the Home Buyer Tax Credit Unveiled 5Significant Changes to the Home Buyer Tax Credit 6

New Changes to the Home Tax Credit 7

Partial Home Buyer Tax Credits for High-Income Buyers 8

Claiming the First-Time Home buyer Tax Credit: Are You Eligible? 9

What Types of Homes Qualify for a Tax Credit? 10

Using Your Future Income Tax Return as a Down Payment on a Home 11

Tax Credits Benefits of Military Members and their Dependents 12

Incentives for Increasing Your Energy Efficiency 13

Energy-Efficient Roofs and Energy Tax Credits 14

Incentives for Increasing Your Energy Efficiency 15

Energy-Efficient Heating and Cooling Can Earn You A Tax Credit 16

Renewable Energy Incentives for Homeowners 17

Energy Tax Credits for the Purchase of Wood Stoves 18

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The All New

Guide toHomeowner Tax Credits


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The All New

The Basics of New Tax CreditsA tax credit is a nancial instrument used to reduce the amount of income tax owed by a single person or married

couple. Every dollar of a tax credit reduces your personal income taxes by a dollar, regardless of your tax bracket.

How a Tax Credit WorksLets look at a simplied example: You made $34,000

gross income for the year and your CPA estimates

you will fall into the 28 percent tax bracket. The CPA

calculates your tax due at $9,500 (28 percent X $34,000

= $9,500). A tax credit of $8,000 would reduce your tax

due to only $1,500. ($9,500 - $8,000 = $1,500).

Why Tax Credits Are Better than Tax

DeductionsTax credits are different from tax deductions, which

serve only to reduce the amount of your taxable income,

from which the actual tax due is calculated. Using the

same example above, a tax deduction would reduce

your taxable income of $34,000 to $26,000 ($34,000 -

$8,000 = $26,000.) Your taxes would then be calculated

on that lowered gross income gure. 28 percent of$26,000 yields a tax due of $7,280.

Its not hard to understand why a tax credit can be

so benecial, and why they are preferable to tax

deductions.

Who Makes Tax Credits Available?Tax credits are offered by several federal government

departments in conjunction with the Internal Revenue

Service (IRS). Credits are also offered by some states

that require individuals pay income tax.

Tax credits are usually offered as a part of congressional

legislation, aimed at stimulating a certain sector of the

economy or promoting other federal programs.

Most programs are geared toward making the

purchase of necessity items affordable, like the federal

governments Home Buyer Tax Credit. Other programs

center around energy tax credits and transportation; like

making your home more energy efcient, adding solar

panels, or buying a hybrid car.

Who Can Use a Tax Credit?Tax credits can be used by any member of the general

public, and are usually available for a limited period of

time. Eligibility requirements vary from credit to credit,

but are often categorized by income and geographical

limitations, among others.

How Can I Apply for a Tax Credit?Tax credits dont require any special paperwork. If

youre eligible to receive the credit and you satisfy the

terms of the credit, you will claim it on your federal (IRS

Form 1040) or state tax returns.

For instance, to be eligible for The Federal Home Buyer

Tax Credit, you must make less than $75,000 gross

income per year as a single person or $225,000 as a

married couple. You also must purchase a home in

the set qualifying timeline. Doing so allows rst time

homeowners to claim an $8,000 credit, and previous

homeowners to claim a $6,500 credit on their federal taxreturns.


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The All New

Types of 2009 Tax CreditsThere are several types of tax credits available for taxpayers across the United States. Most revolve around the

home, although there are some credits that involve energy efciency, education, and others that are based solely on

your income levels. All tax credits are similar in that every dollar of each of these tax credits reduces the amount of

income tax you pay by a dollar.

Basically, this means if your CPA determines you owe $4,000 in taxes for this year, and you are eligible for a $4,000

tax credit, you will essentially owe no taxes ($4,000 - $4,000 = $0).

Buy a Home and Get a Tax CreditTwo very popular tax credits are the Home Buyer Tax

credit and the rehabilitation tax credit. Both credits

are offered by the federal government and deal

with purchasing a home and renovating a business,

respectively.

The Home Buyer Tax Credit was recently extended

through 2010 and offers a credit of $8,000 for rst-time

home buyers and $6,500 for those who are purchasing

a home and have had previous ownership in a home

over the past three years.

The Rehabilitation Tax Credit applies to those who

spend money on renovating or constructing commercial

buildings for business related purposes. This program is

geared toward beautifying older property and updating

it according to new safety codes. Property owners can

take a 10 percent of cost credit on buildings placed in

service before 1936, and a 20 percent of cost credit

for those who renovate certied historic buildings. For

those who live in certied disaster areas, the credit is

increased from 10 percent to 13 percent.

There are qualifying guidelines for each program,

including the following:

Meeting certain income levels

Purchasing a home within a certain timeframe

Purchasing a specic type of home

Renovating your business within a certain timeframe.

Energy Tax Credits Reward Energy

EfficiencyEnergy tax credits are available from the federal

government and almost every state throughout the

country. Most of these credits require you to increase

the energy efciency of your home by purchasing

appliances that use less electricity or take advantage

of alternative energy processes. Many Energy Star

appliances provide tax credits, including:

Advanced heating and ventilation units

Biomass stoves Energy efcient windows and doors

Non-solar water heaters.

Generally, you can take a tax credit of 30 percent of

your energy improvement appliance cost, up to a total

tax credit of $1,500.

Other Income Tax CreditsThe Hope Scholarship Tax credit provides a federal

income tax credit of up to $2,500 per student. In order

to be eligible, the student must be enrolled in a qualiedpost-secondary educational institution. The credit is

based on the amount of money spent on tuition, fees

and course materials. Similarly, the Lifetime Learning

Tax Credit provides a credit of up to $2,000 per taxpayer

for education expenses. The credit is doubled to $4,000

for students living in a Midwestern disaster area. This

credit is also available for those taking courses to

acquire or improve job skills.

Another tax credit available to the masses is the Making

Work Pay Tax Credit, which provides a refundable taxcredit of up to $400 for working individuals and up

to $800 for married taxpayers ling joint returns. This

tax credit is calculated as 6.2 percent of your earned

income (up to the maximums mentioned above) and

phases out for taxpayers with modied adjusted gross

income in excess of $75,000, or $150,000 for married

couples ling jointly.


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The All New

Basics of the Home Buyer Tax CreditThe rst-time home buyer tax credit is a popular credit offered by the federal government which offers a dollarfor dollar reduction of your personal income taxes. It was extended as part of the Worker, Homeownership, and

Business Assistance Act of 2009. This act gives a tax credit to those entering into a binding contract to purchase a

home by April 30, 2010 and settling by June 30, 2010. The program is available to qualied participants across the

country.

Amount of the Tax CreditsFor rst-time home buyers, the tax credit is up to

$8,000, and for those who have had ownership in

a home over the past three years the credit is up to

$6,500. In both cases, the person must purchase a new

home before June 30, 2010 and use it as their personal

residence. The actual amount of the tax credit is 10

percent of the purchase price of the home. For example,

a home purchased at $300,000 would give you the full

$8,000 credit. 10 percent of $300,000 is $30,000, which

is more than $8,000, but unfortunately, the max credit is

capped at $8,000. A home purchased at $55,000 would

offer a $5,500 credit (10 percent X $55,000 = $5,500).

Home Buyer Tax Credit EligibilityThere are several guidelines which help determine

eligibility for the tax credit:

The home purchase price may not be more than

$800,000.

The purchaser must be at least 18 years of age.

Your modied adjusted gross income (AGI) must be

less than $125,000 ($250,000 if youre married and

ling taxes jointly).

How Can I Apply for a Tax Credit?Tax credits dont require any special paperwork. If youre

eligible to receive the credit and meet the requirements

of this rst-time home buyer tax credit, you will claim it

on your federal tax return using IRS form 5405 and the

standard personal yearly return Form 1040.

Getting a Partial Home Buyer Tax CreditThose with elevated income levels between $125,000

and $145,000 ($225,000 and $245,000 married ling

jointly) can receive a partial tax credit. Having income

levels higher than those mentioned above will disqualify

you from the credit. The partial credit will be determined

by the calculations on IRS form 5405.

Extensions for Military MembersMembers of the Armed forces and other federal

employees serving outside the U.S. are granted an extra

year of eligibility. Military members have until June 30,

2011 to qualify for the credit.

Special Situations and the First-Time Home Buyer Tax

Credit

The home buyer tax credit also applies to some unique

situations. You may be able to get the rst-time homebuyer tax credit if you purchase:

A mobile home or manufactured home

A travel trailer that is afxed to land.


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The All New

Rehabilitation Tax Credit BasicsThe rehabilitation tax credit is offered by the federal government as a dollar for dollar reduction in incometaxes for the qualied renovation and reconstruction of commercial buildings. You can qualify for a tax

credit of up to 20 percent of the cost of the rehabilitation depending on the type of property you own.

The purpose of the credit is to encourage owners

of older commercial and business property to bring

property up to current safety standards and zoning

codes. An ancillary benet is the beautication of

the property and its ability to increase property

value across the neighborhood.

Who is Eligible for the Historic

Preservation Credit?Your building meets eligibility criteria for the

historic buildings credit if you are renovating

buildings that are either:

Buildings placed in service before 1936

Certied historic buildings.

There are no other requirements for this credit,although you may not get the tax credit if your

property is already considered a tax exempt

property, as is the case with some certied historic

buildings. The tax credit is not available for new

construction or for the enlargement of existing

properties.

Amount of the Historic Buildings CreditYou will receive a tax credit in the amount of 10

percent of your rehabilitation costs for renovationsdone on buildings placed in service before 1936,

and 20 percent of costs on certied historic

structures. For example, if your property was

placed in service in 1920 and you spend $100,000

on rehabilitation costs, you may be eligible to

receive a tax credit up to $10,000 (10 percent X

$100,000 = $10,000).

Disaster Areas Can Increase Your

Historic Tax CreditIf your property is located in an area that was

affected by hurricanes Rita, Wilma, or Katrina,

you may be eligible for additional credits. For

properties located in other disaster areas affectedby severe storms, tornados, or oods, the credits

can be increased to 13 percent and 26 percent

depending, again, on the type of historic structure.

How Can I Apply for the Credit?Applying for the rehabilitation tax credit is relatively

easy. Youll be responsible for lling out a few

IRS forms along with your tax returns. If you have

performed qualied restoration of a commercial

property, you can claim the historic building taxcredit by lling out IRS form 3468 (investment

credit). The form walks you through qualifying

procedures, and will help you gure out how much

of your costs are applicable, along with the total

amount of your historic buildings tax credit.


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The All New

New Changes to the Home Buyer Tax Credit UnveiledThe Internal Revenue Service has just issued new guidelines for the Home Buyer Tax Credit, which was extendedas part of the Worker, Homeownership and Business Assistance Act of 2009 passed on November 6, 2009. In

summary, the government made the following changes along with the new tax credit extension:

Existing homeowners can take advantage of the

program up to $6,500.

First-time home buyers can up to an $8,000 tax

credit.

Income limits were raised to $125,000 modied

adjusted gross income for single taxpayers and to$225,000 for those who le jointly.

Members of the armed forces will have an extra year

to apply. Theyll need to be in contract by April 30,

2011 and close by June 30, 2011.

Partial tax credits are available to individuals with

incomes between $125,000 and $145,000 and joint

lers with incomes from $225,000 to $245,000.

Participants need to be in contract to purchase a

home by April 30, 2010 and close on the purchase of

a home by June 30, 2010.

What This Means to YouOf all the changes in the tax credit extension, the two

most important are the addition of the ability for existing

homeowners to apply and the overall raised income

limits. This second amendment represents a generous

67 percent increase over pre-November 6 guidelines.

These changes are expected to:

Allow buyers to lower their personal income taxes

Bring relief to the housing market by making it easier

for buyers to purchase a home

Open up the housing tax credit to a larger potential

buying pool.

Taking Advantage of the Tax CreditThe amount of the credit itself is calculated at 10

percent of the purchase price of the home, up to the

maximums mentioned above. For instance, if the home

you purchase as a rst-time home buyer has a price

of $72,000, you will be eligible for a $7,200 tax credit($72,000 X 10 percent = $7,200). If the price of the

home is above $80,000 you will only be eligible for

the maximum amount, $8,000. Buyers who have had

ownership interest in a home over the previous three

years calculate the credit in the same fashion, although

their maximum housing tax credit is $6,500.

How to Apply for the Housing Recovery

Act Tax Credit

Applying for the home buyer tax credit is relativelysimple. After the purchase of your home, youll ll out

IRS form 5405 and submit it with your income tax

return for 2008, 2009, or 2010, depending on when you

purchased your home. The form walks you through the

basic calculations and lets you know what to expect in

terms of a nal tax credit.


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The All New

Significant Changes to the Home Buyer Tax CreditThe Worker, Homeownership and Business Assistance Act of 2009 passed on November 6, 2009 incorporatesseveral signicant changes to the Home Buyer Tax Credit, two of which affect which buyers may be eligible. These

include an extension of the tax credit to existing homeowners and a ling date extension for members of the Armed

Forces as well as some other government employees.

Previous Homeowners Added to Tax

Credit RequirementsNow, those with ownership interest in a home over the

past three years are also eligible. Existing homeowners

can therefore sell their principal place of residence andpurchase a new one while still maintaining tax credit

eligibility. This change alone is expected to help stabilize

the real estate market and expand the tax home

buyer tax credit to a larger buying pool. The existing

homeowner tax credit is limited to a maximum amount

of $6,500, and is actually calculated as 10 percent of

the purchase price of the home.

For example, lets say a young couple has welcomed a

new baby into their family. They can sell their existing

home, move into a larger home and receive the taxcredit. If the purchase price of the new home is $62,000,

the 10 percent rule would determine their credit to be

$6,200. If they purchase a home that is priced higher

than $65,000, however, their credit will be capped at

$6,500.

Armed Forces Date Extension for the

Home Buyer Tax CreditFor members of the military and certain other

government employees, the tax credit requirements

are extended one year, allowing these buyers to go intocontract on a home by April 30, 2011 and close by June

30, 2011.

This benet is open to servicemen and women serving

outside the U.S. for at least 90 days during the period

Dec. 31, 2008 and May 1, 2010. The tax credit applies

to any eligible individual and, if married, the individuals

spouse. Eligible participants include:

Employees of the intelligence community

Members of the Foreign Service

Members of the Uniformed Services.

Recapture of the Home Buyer Tax Credit

WaivedAnother interesting development in the new tax credit

legislation has to do with the recapture or repayment of

the credit. Recapture takes place when the homeowner

sells her home (principal residence) within the

36-month period after the date of the home purchase.

Since housing transfers are common in the military

community, this tax credit recapture requirement is

usually waived for applicants in the armed forces.


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The All New

New Changes to the Home Tax CreditAs part of the Worker, Homeownership and Business Assistance Act of 2009 passed on November 6,2009, the Home Buyer Tax Credit has higher applicable income limits and a clause for earning potential

tax credits for mid- to high-income level buyers.

The income limit revisions are the most signicant modication to the legislation. Combined with the fact

that previous homeowners can take advantage of the credit, the home buyer tax credit program is now

open to a much larger pool of potential buyers.

Tax Credit Limit Income RequirementsThe new home buyer tax credit income limits were

raised to $125,000 and $225,000 for singles andjoint lers respectively. This represents a signicant

increase of almost 67 percent over the previous

limits, which were $75,000 for single tax lers

and $150,000 for joint lers. Dollar gures are

expressed as modied adjustable gross income

(MAGI), from which your personal income tax due

is calculated and led on IRS form 1040.

Partial Home Tax Credits

Rather than making the home buyer tax creditan all or nothing scenario, the new changes also

include a partial tax credit for those with mid- to

high-level incomes. That means an amount less

than the full $8,000 or $6,500 credit can be earned

by joint ling taxpayer buyers who have income

between $225,000 and $245,000 and single lers

with income between $125,000 and $145,000.

The nal amount of the partial credit is determined

by following the calculations on IRS form 5405,

which was amended for 2009. As the income level

increases, the partial credit decreases.

When The Home Buyer Tax Credit is Not

AvailableAs with the previous legislation, there is a topline income limit for eligible buyers, above which

applicants for the home tax credit phase out,

meaning the credit is no longer available. The top

line limits depend on when you purchased the

home, and are retro-active through the previous

legislation periods.

For purchases on or before Nov. 6, 2009, for a

married couple ling a joint return phase out after

earning MAGI of more than $170,000 and $95,000

for single lers. For purchases after Nov. 6, 2009, amarried couple ling a joint return can have a MAGI

of up to $245,000 or $145,000 for single lers. The

home buyer tax credit is no longer available for

income levels in excess of those amounts.

Regardless of income level, after purchasing an

eligible home, home buyer tax credit applicants will

ll out IRS Form 5405 and le the report along with

personal income tax IRS form 1040.


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The All New

Partial Home Buyer Tax Credits for High-Income BuyersAs part of the Worker, Homeownership and Business Assistance Act of 2009--passed on November 6, 2009--theHome buyer Tax Credit includes eligibility for people with high income levels. The new legislation allows singles

making between $125,000 and $145,000 and joint lers making between $225,000 and $245,000 to obtain partial

tax credits. A partial tax credit is an amount less than the $8,000 credit for rst time homebuyers and $6,500 for

existing homeowners.

In each case, partial credits are available for those with

an income range up to $20,000 higher than the current

established home buyer tax credit income limits. This

represents a signicant change over the previous tax

credit, which was available only for rst-time home

buyers whose income was less than $75,000 for single

lers and $150,000 for those who were married and

ling taxes jointly.

How the Partial Credits WorkIf your income is within $20,000 of the maximum

established income limits, you may be eligible to

receive a partial credit, which is based on a sliding

scale percentage. As an example, heres how the credit

works:

Assume a married couple has a modied adjusted

gross (MAGR) income of $237,000. Since the maximum

income limit is established at $225,000, this couple is

$12,000 over the limit. The phase-out for partial credits

is a range of $20,000 over the limit, so the overage ratio

is calculated as 60 percent ($12,000/$20,000=60%).

Since they are over by 60%, they are eligible for a 40%

credit (100% - 60% = 40%). If they were rst-time home

buyers purchasing a home priced higher than $80,000,

they would receive a credit of $3,200 ($8,000 x 40% =$3,200).

For single buyers it works the same way. Assume they

have income of $140,000. The overage ratio is 75%

(15,000/20,000), making them eligible for a 25% tax

credit. If they are existing homebuyers they would be

eligible for a $1,625 credit (25% x $6,500).

Phasing Out of the Homebuyers Tax

CreditIf you earn income higher than the maximum limits

established, you may still be eligible for a partial tax

credit. Partial credits are given to those who are less

than $20,000 over the established maximums.

Those over the $20,000 partial credit income range

phase out completely, meaning they are not eligible to

receive a home buyer tax credit in any amount.


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The All New

Claiming the First-Time Home buyer Tax Credit: Are You Eligible?To claim the home buyer tax credit, a buyer must rst meet the Home Buyer Tax Credit Guidelines. These wereexpanded in November 2009, as part of the Worker, Homeownership and Business Assistance Act of 2009.

To receive a tax credit, qualied applicants must:

Be a rst-time home buyer or a buyer who has had

ownership interest in a home for no more than the

previous 36 months

Be a legal resident of the US

Have a yearly modied adjustable gross income

(MAGR) that falls within allowable income limitations Not buy the home from a close relative

Use the purchased home for their principal

residence.

Required Paperwork in Claiming the Tax

CreditIf youve determined youre eligible, there are two forms

you need to ll out to claim the tax credit:

1. IRS form 1040: This is the standard income tax form

which all non-exempt tax payers are required to le

each year. This form determines how much tax you

owe (if anything), or if you overpaid on taxes, how

much of a refund you will receive.

2. IRS form 5405: This form was created specically

for the home buyer tax credit, and is to be used as

a worksheet to help determine the actual amount of

credit for which you qualify.

This tax form walks you through simple calculations

related to the purchase price of your home and your

yearly income level. When combined with the date youpurchased your home, this form tells you how much of a

tax credit you qualify for.

Form 5405 should be lled in before form 1040, as youll

need to determine the amount of the credit rst, and

then place it on line 69 of the form 1040. The two forms

should then be led together before the income tax

deadline.

Claiming the Tax Credit if You Bought a

Home in 2008In 2008, the home buyer tax credit was applied as

an interest-free loan that had to be paid back to the

government through tax returns over a period of 15

equal installments.

Since the home buyer tax credit extension eliminates

the requirement to repay the credit, homebuyers can

le an amended tax return and keep the full amount

of the credit they received. Amended tax returns take

several weeks for approval, and those who need to le

such documents should seek the help of a qualied tax

professional, such as a certied public accountant (CPA)

or a specialized tax attorney.


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The All New

What Types of Homes Qualify for a Tax Credit?Under the new extension of the home buyer tax credit, only purchases of homes that are planned as principalresidences qualify. A principal residence is dened as a home the buyer and/or the buyers family plan to occupy

most of the time. This is also known as a main house under IRS tax denitions.

A principal residence or main house, however, doesnt

really have to be a house, per se. A principal residence

can also be a:

Cooperative apartment

Condominium

Houseboat House trailer or mobile home.

Still other types of residences apply, so long as you live

there the majority of the time.

Families that split time between two homes in locations

at least 50 miles apart they may claim the tax credit

on only one of the homes, if it was purchased during

an eligible time period and adheres to other qualifying

home buyer tax credit guidelines.

Home Purchasing RestrictionsTo be eligible for the home buyer tax credit, your home

must not be purchased from:

A corporation in which you directly or indirectly own

more than 50 percent in value of the outstanding

stock of the corporation

A partnership in which you directly or indirectly own

more than 50 percent of the capital interest or prots

interest

Your spouse, ancestors (parents, grandparents, etc.),or lineal descendants (children, grandchildren, etc.).

If your home was purchased from a member of the

list referenced above you would not be eligible for any

credit under the legislation and IRS guidelines.

Home Purchase Price Requirements

Under the Home Tax CreditWhile the home credit allows you to purchase many

types of homes as a principal residence, the credit itself

is based on a percentage of the purchase price of the

home.

The actual amount of the tax credit you receive is

calculated as 10 percent of the purchase price of the

home, not to exceed the maximum credit limitations

of $8,000 for rst-time home buyers and $6,500 for

existing homeowners.

For instance, if a rst time homebuyer purchases a

home with a price of $78,000 they would receive a

credit of $7,800 (10% x $78,000 = $7,800).

A buyer who had ownership interest in a home over the

past 36 months purchases another home at $97,000,

and the home is to be used as their principal residence,

they would be eligible for the full $6,500 credit. That is

because 10 percent of $97,000 is $9,700, which is more

than $6,500, so their credit is maxed out at the available

credit limit, $6,500.


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The All New

Using Your Future Income Tax Return as a Down Payment on aHome

An interesting feature of the home buyer tax credit is the buyers ability to tap into their expected credit, even before

their income tax return is led. In addition, this money can be used as a down payment on the purchase of a home.

The Federal Housing Administration (FHA) is working

with the Internal Revenue Service (IRS) to allow buyers

to use their expected tax credit to cover loan closing

costs. These groups are also collaborating in order to

provide additional down payment money above and

beyond the minimum FHA insured requirement of 3.5

percent of the purchase price.

Tax Credit MonetizationThe FHA is allowing buyers to use their credit as a

down payment, which can be as much as 10 percent

of the purchase price of the home up to $8,000 for a

new home buyer or $6,500 for an existing homeowner.

The FHA, through its lending partners like banks and

state non-prots, monetizes the home buyer tax credit

by placing a lien in second position on the home beingpurchased.

For example, lets say a rst-time home buyer

purchases a $200,000 home using an FHA-insured loan

through a local lender, Bank A. Bank A requires a down

payment of 3.5 percent ($7,000). On top of that, the

lender is charging $5,000 in associated closing costs,

which can be paid for with the advanced tax credit. 10

percent of $200,000 yields $20,000, but the tax credit is

capped at $8,000 for rst time home buyers. Therefore

Bank A will place a rst loan of $193,000 and a secondloan of $5,000 on the property.

New Home Buyer Program TimingThose buyers who were planning to purchase homes

in late 2009 and early 2010 (2011 for military members)

but didnt have all the capital needed to do so, can now

tap into their expected credit at the time they make

their FHA insured loan application. All the paperwork is

handled by FHAs lending partners, which include local

and national commercial banks and state non-prot

agencies that lend money for home purchases.

Those who purchased homes in 2008 have already

used their down payment money, and will see a

reimbursement through an amended return on their

2009 income tax return. Those who purchased a home

in early 2009 will see their reimbursement tax credit

when they le income tax returns in 2010.

Repaying the Income Tax Return LoanThe second lien placed on the property as a result of

monetizing the tax credit can be repaid by the borrower

when they receive their income tax return. No prepay

penalties will be charged, though borrowers who dont

pay their second liens off after the home buyer tax credit

program is set to end will be charged additional interest.


14/22




The All New

Tax Credits Benefits of Military Members and their DependentsThere are many benets of military involvement, including government-sponsored programs not offered to thegeneral public. This is especially true when it comes to making the purchase of a home affordable for its service

men and women. In the past, the government has extended to its members access to housing programs such as

the GI bill and VA loans.

Now, the government is offering additional benets

through the home buyer tax credit program that will give

more service men and women the chance to purchase a

home that qualies for these tax credits.

Military Service Members and the

Extended Tax Credit DeadlineUnder the new extension of the home buyer tax

credit program, military service members and certain

government employees have an additional year to

purchase a home that qualies for the tax credit.

According to the new deadlines, these two groups of

buyers must be in contract to purchase a home by April

30, 2011, and must close on the home by June 30,

2011.

Other Government Workers Who Qualify

for the Tax Credit ExtensionIn addition to military service members, other selected

government workers are eligible for this special rule.

Qualied government workers include:

Employees of the intelligence community

Members of the Foreign Service

Members of the uniformed services.

These individuals will be eligible if they serve on

qualied ofcial extended duty service outside of the

United States for at least 90 days between Dec. 31,

2008 and May 1, 2010.

According to the Internal Revenue Service, qualied

ofcial extended duty is dened as any period of

extended duty at a location at least 50 miles away from

the taxpayers principal residence (whether inside or

outside the U.S.) or while residing under government

orders in government quarters.

In addition to the worker himself, there are certain

military dependent benets in this program: Spouses

are also eligible for this extension.

Paying Back the Tax CreditThe tax credit is applicable only for people who are

purchasing homes to be used as a primary home, or

what the IRS calls a primary residence. This is the

home in which the buyer plans to spend the majority ofher time.

If military service members sell their residence within

three years of purchasing a home with the home

buyer tax credit, they may be required to pay back a

portion of the credit. Military members and qualied

government employees are exempt from the payback

or recapture clause if theyre forced to sell their home

due to government transfer orders, or being called into

qualied ofcial extended duty.


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The All New

Incentives for Increasing Your Energy EfficiencyThe U.S. Department of Energy (DOE) offers tax credits for consumers who use high levels of energy efciencyin their daily lives. Federal programs include credits for home energy efciency and purchasing alternative fuel

vehicles, among others. Here are some of the more popular energy tax credits.

Home Energy Efficiency ImprovementsThe federal government is offering an energy tax credit

to consumers who purchase and install energy-efcient

windows, insulation, doors, roofs, and heating and

cooling equipment in existing homes. These 2009

tax credits provide for 30 percent of the cost of theimprovements, up to a maximum credit of $1,500.

Improvements must be completed in the home between

January 1, 2009 and December 31, 2010.

Residential Renewable Energy Tax

CreditsConsumers who install solar energy systems in their

home can benet from solar energy credits totaling 30

percent on qualied improvements costs. In addition,

systems placed in service before December 31, 2006are no longer subject to any maximum credit cap.

Some energy-efcient systems that qualify for the

energy credit include:

Geothermal heat pumps

Residential fuel cell and micro-turbine systems

Small wind systems

Solar electric systems

Solar water heaters.

To be eligible for these energy tax credits, the home

improvements must be certied by the Solar Rating and

Certication Corporation (SRCC) or by a comparable

entity endorsed by the your state government. Some

requirements for these solar energy credits are the

following:

At least half of the energy used to heat the dwellings

water must be from solar energy.

Fuel cells must have electricity-only generation

efciency greater than 30 percent.

Geothermal heat pumps must meet federal Energy

Star requirements.

Alternative Fuel Vehicle Tax CreditsThe term alternative fuel describes any vehicle that

doesnt rely on gas alone to run. These automobiles

help to reduce carbon emissions and lessen the impact

on dwindling supplies of fossil fuels. As such, the

government offers several 2009 tax credits available to

individuals and businesses who purchase:

Plug-in electric vehicles: An energy tax credit of up

to $7,500 applies to qualied vehicles, depending onthe battery capacity.

Plug-in hybrid conversion kits: The government will

award a tax credit equal to the lesser of $4,000 or

10 percent of the cost of converting a vehicle to a

qualied plug-in electric car. Conversions must be

completed after Feb. 17, 2009.

Additional Benefits of Energy EfficiencyIn addition to federal tax incentives and the obvious

benets to the environment, many states offer utilityand tax rebates to people who build energy-efcient

homes, and purchase alternative energy vehicles and

equipment. To nd out which programs are currently

offered, visit your states Department of Energy Web

site.


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The All New

Energy-Efficient Roofs and Energy Tax CreditsThe federal government, through the Department of Energy and the Energy Star Program, is offering tax credits toconsumers who install qualied energy-efcient roof products on their existing homes. These energy tax credits

offer a dollar for dollar reduction of personal income tax owed.

Energy-efcient roofs reect more of the suns rays.

These types of roofs lower roof surface temperature

by as much as 100 degrees Fahrenheit, decreasing

the amount of heat transferred into your home. These

special roofs cut down on how much energy is needed

to cool your house during those hot summers.

Energy-Efficient Types of RoofsEnergy Star recognizes two types of roofs for the

energy tax credit: metal and asphalt roofs. There are

approximately 100 asphalt roofs that qualify for energy

tax credits. Some of the most common types of roofs

that apply are the following:

Modied bitumen roofs are rolled roofs generally

used on at roof surfaces.

Shingled roofs are typically used on sloped

residential roofs

The energy-efcient roof tax credit is calculated as

30 percent of the cost of the roof plus installation

costs, up to a maximum credit amount of $1,500.

The improvements must be made on an existing

principal residence and will not qualify if made on rental

homes, vacation properties, or homes that were new

construction.

Claiming the Energy-Efficient Roof CreditQualifying roong products must meet certain Energy

Star standards and installation requirements. You

must purchase these products from and have them

installed by a federal or state certied manufacturer and

contractor. These specially-trained contractors will be

experienced in meeting stringent efciency guidelines.

Among other reasons, these requirements are meant

to deter people from taking advantage of the tax credit

without actually completing the required improvement.

To claim this energy tax credit, youll ll out IRS Form

5695 (Residential Energy Credits) and le it along

with your yearly income tax return. Form 5695 walks

you through the tax credit calculations and helps you

determine the exact amount of credit you can claim on

your personal income tax return.

The roof manufacturer or contractor will give you an

energy certication statement with the purchase of the

roong products. Although this statement doesnt have

to be turned in with your income tax return, you may be

asked to show it sometime down the road. Make sure

to keep this certication in a safe place with your other

important home documents.


17/22




The All New

Incentives for Increasing Your Energy EfficiencyThe U.S. Department of Energy (DOE) offers tax credits for consumers who use high levels of energy efciencyin their daily lives. Federal programs include credits for home energy efciency and purchasing alternative fuel

vehicles, among others. Here are some of the more popular energy tax credits.

Home Energy Efficiency ImprovementsThe federal government is offering an energy tax credit

to consumers who purchase and install energy-efcient

windows, insulation, doors, roofs, and heating and

cooling equipment in existing homes. These 2009

tax credits provide for 30 percent of the cost of the

improvements, up to a maximum credit of $1,500.

Improvements must be completed in the home between

January 1, 2009 and December 31, 2010.

Residential Renewable Energy Tax

CreditsConsumers who install solar energy systems in their

home can benet from solar energy credits totaling 30

percent on qualied improvements costs. In addition,

systems placed in service before December 31, 2006

are no longer subject to any maximum credit cap.

Some energy-efcient systems that qualify for the

energy credit include:


Residential fuel cell and micro-turbine systems

Small wind systems

Solar electric systems

Solar water heaters.

To be eligible for these energy tax credits, the home

improvements must be certied by the Solar Rating andCertication Corporation (SRCC) or by a comparable

entity endorsed by the your state government. Some

requirements for these solar energy credits are the

following:

At least half of the energy used to heat the dwellings

water must be from solar energy.

Fuel cells must have electricity-only generation

efciency greater than 30 percent.

Geothermal heat pumps must meet federal Energy

Star requirements.

Alternative Fuel Vehicle Tax CreditsThe term alternative fuel describes any vehicle that

doesnt rely on gas alone to run. These automobiles

help to reduce carbon emissions and lessen the impact

on dwindling supplies of fossil fuels. As such, the

government offers several 2009 tax credits available to

individuals and businesses who purchase:

Plug-in electric vehicles: An energy tax credit of up to

$7,500 applies to qualied vehicles, depending on thebattery capacity.

Plug-in hybrid conversion kits: The government will

award a tax credit equal to the lesser of $4,000 or 10

percent of the cost of converting a vehicle to a qualied

plug-in electric car. Conversions must be completed

after Feb. 17, 2009.

Additional Benefits of Energy EfficiencyIn addition to federal tax incentives and the obvious

benets to the environment, many states offer utilityand tax rebates to people who build energy-efcient

homes, and purchase alternative energy vehicles and

equipment. To nd out which programs are currently

offered, visit your states Department of Energy Web

site.


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The All New

Energy-Efficient Heating and Cooling Can Earn You A Tax CreditOther than a mortgage, heating your house can be one of the biggest costs youll incur as a homeowner. Energy-efcient HVAC systems (heating, ventilation, and air conditioning units) are lowering these costs and allowing

consumers and homeowners to tap into energy tax credits offered through the federal governments Department of

Energy and the Energy Star Program.

HVAC Tax Credit Amounts and DeadlinesWhen homeowners buy energy-efcient HVAC systems,

consumers can get an energy tax credit equal to 30

percent of the unit purchase price plus installation

costs, up to a maximum credit of $1,500. This HVAC

tax credit program is set to expire in December 2010.

Improvements will only qualify if they are made to

an existing home, and this home must be a primary

residence. Improvements made to new construction

homes, rental units, second homes and vacation

properties do not qualify for the tax credit.

HVAC Systems that Qualify for Energy

Tax CreditsThere are ve main types of HVAC systems that heat

and cool the home:

Air source heat pump

Central air conditioning (CAC)

Gas, propane or oil hot water burner

Natural Gas or Propane Furnace

Oil furnace.

All of these systems will be eligible for some form of

tax credit as long as minimum efciency levels are

met. HVAC efciency is rated by AFUE (Annual Fuel

Utilization Efciency), which tells you what percent of

energy used by the machine is converted to usable

heat. For instance, a rating of 95 means that 95 percent

of the energy used to run the machine is converted

to usable heat energy. The higher the rating, the more

energy-efcient the unit.

To be eligible for energy tax credits through the Energy

Star program, boilers must be rated at an AFUE of 85 or

better and furnaces must be rate at AFUE 90 or better.

Solar Energy Means More Energy Tax

CreditsMany homeowners have chosen to install solar panels

to harness the energy needed to power their electrical

HVAC units. Installation of solar panels and other solarHVAC systems will allow you to apply for a tax credit up

to 30 percent of the solar system cost plus installation,

with no cap on the maximum amount that can be

earned.

Both existing homes and new construction may qualify

for this credit, with the actual amount based on both

cost and the amount of power capacity supplied by

your HVAC systems.


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The All New

Renewable Energy Incentives for HomeownersAdvanced technology allows us to harness the power of the earth, wind and sun to supply energy for our homes.Not only are these systems great for the environment, but they can also earn you renewable energy credits. The

three main renewable energy systems that qualify are the following:


Small wind turbines

Solar energy.

Geothermal Tax CreditsGeothermal heat pumps are similar to ordinary heat

pumps, but instead of using heat found in outsideair, they rely on the stable, even heat of the earth to

provide heating and air conditioning. In the winter,

they move the heat from the earth into your house

and in the summer, they pull the heat from your home

and discharge it into the ground. Geothermal heat

pumps are among the most energy efcient systems

in existence. All Energy Star geothermal heat pumps

qualify for the renewable energy credits.

Wind Power CreditsA wind turbine collects kinetic energy from the wind and

converts it to electricity that is compatible with a homes

electrical system. This type of renewable energy is used

to power anything that relies on electricity.

Solar Energy CreditsSolar energy systems are made up of photo voltaic

panels that absorb rays from the sun and convert them

to energy which can be used in the electrical system

of your house. Typically, solar systems are placed onthe roof of the home where they can get maximum

exposure to the sun. Many solar panels come with cells

that have the ability to store the suns energy to be used

even when the sun is not shining.

Amount of the Renewable Energy CreditsResidential renewable energy credits are calculated as

30 percent of the cost of the unit, plus installation costs.Because these systems provide extremely high levels

of efciency, there is currently no limit for the amount of

energy tax credit for which a homeowner can apply.

Eligibility Requirements for the

Renewable Energy IncentivesRenewable energy systems must be installed in your

existing principal residence or main house. New

construction homes also qualify for the renewable

energy incentives, but rental properties do not.

To claim the credit for a solar system, the unit must

generate at least half of the homes total energy. Tax

credit eligibility for geothermal pumps also requires a

certain energy efciency rating. This amount will differ,

depending on whether the system is closed loop, open

loop or direct expansion.

Claiming the Energy Tax CreditsTo claim the credit youll ll out IRS Form 5695

(Residential Energy Credits Form) and le it along with

your yearly income tax return, IRS Form 1040.


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The All New

Energy Tax Credits for the Purchase of Wood StovesWood stoves have been heating homes for hundreds of years. Some homeowners have units large enough to heattheir entire home throughout the year. Now, technological advancements made in the manufacturing of wood stoves

include the following:

Increased safety measures

Longer wood-burning time

Raised heating efciencies

Recycled heat.

Wood stoves have also gone beyond burning the basic

wooden log, and homeowners can now use what iscalled bio mass to heat their home. These products

are cheaper to make and last longer than standard

wood, which is why the government offers an energy tax

credit for the installation and use of wood stoves in the

home. Some common forms of bio mass are:

Fibers

Grasses

Pellets

Plants

Wood wastes and residues.

Amount of the Wood Stove Tax CreditThe federal government, through the Department of

Energy and the Energy Star Program, offers a wood

stove and bio mass credit equal to 30 percent of

the cost of the stove, including installation, up to a

maximum amount of $1,500.

Tax Credit Eligibility of Wood and Bio

Mass StovesTo be eligible for the credit, the stoves must have a

thermal efciency rating of at least 75 percent. The

wood stoves must also meet certain Energy Star

standards and installation requirements. For safety

reasons, the units should be purchased and installed by

a federal or state certied manufacturer and contractor.

Wood and bio mass stoves must be installed in

your principal residence, which the IRS describes

as the home at which you spend the most time. For

homeowners with two homes more than 50 miles apart,they may only take the credit on one of the stoves. New

construction homes and rental units do not qualify for

these energy credits.

Claiming the Energy Tax CreditsIn order to claim the wood stove tax credit, youll ll

out IRS Form 5695 (Residential Energy Credits) and le

it along with your yearly income tax return, IRS Form

1040.

Form 5695 takes you through the steps necessary tocalculate the eligible costs for the wood and bio mass

stove credit. This will determine the nal energy tax

credit amount that youll put on your federal personal

income tax form 1040.

These federal tax credits for wood stoves will be

available through the end of December 2010. The

wood stove tax credit is available to homeowners in all

50 states who purchase and install wood or bio mass

stoves in 2009 and 2010.


21/22




The All New

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22/22


The All New

Additional sources of information:

IRS website:www.irs.gov

The Federal Reserve Board:http://www.federalreserve.gov/consumerinfo

Federal Citizen Information Center:www.pueblo.gsa.gov

Department of Housing and Urban Development:www.hud.gov

Center for Responsible Lending:www.responsiblelending.org
http://www.irs.gov/http://www.pueblo.gsa.gov/http://www.hud.gov/http://www.responsiblelending.org/http://www.responsiblelending.org/http://www.responsiblelending.org/http://www.hud.gov/http://www.pueblo.gsa.gov/http://www.irs.gov/

Home Owner Tax Credit Guide

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Transcript of Home Owner Tax Credit Guide