Your Tax Questions Answered
Home Buyer's Credit
-- When the Check Comes
Kiplinger editorial director Kevin McCormally and fellow tax experts Peter Blank and Mary Beth Franklin tackle your most pressing tax challenges.
By Kevin McCormally, Editorial Director, Kiplinger.com
February 5, 2010
QUESTION:
My wife and I purchased a home on May 27, 2009 which qualified for the $8,000 credit.
We were advised that we could file an amended return for 2008 to claim the credit, and we did so.
It is now 2010, and the latest from the IRS is that the refund should be coming in the mail within the next several weeks.
My questions are:
• Will this $8,000 need to be declared as income?
• What category would the income be classified as on a 1040?
• Should it be declared on another 2008 amended return, or on the 2009 return, or because we still haven’t received it, on the 2010 return?
Thanks for your help with this question. If there is an IRS publication which goes into this, it would be helpful to know the number.
KEVIN ANSWERS:
There’s no IRS publication on this credit but, good news, when you get your $8,000 check it is NOT considered income, so there’s no place to report it on your return. The only tax consequence is that the $8,000 reduces your basis in your new home. If you paid $200,000 for the house, the $8,000 credit would reduce your basis – the amount from which you will determine gain or loss on the sale – would be $192,000. That usually doesn’t matter, of course, since the first $250,000 of gain on the sale of a home ($500,000 for married couples) can be tax free.
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Reader Comments (26)
Posted by: Jack at 02/06/2010 04:08:30 AM
My Son lives and has a resident in Taiwan, works for a contractor in Afganistan. He sends money monthly to us to assist and supplment our social security. My question is; can he deduct us on his taxes? Thanks
Posted by: Roger at 02/06/2010 11:10:10 AM
I too, filed an amended 2008 return claiming the $8000 credit and have yet to receive a check. Now that it's filing season for 2009, my question is the same as this guys 3rd question..."Should it be declared on another 2008 amended return, or on the 2009 return, or because we still havent received it, on the 2010 return?
Posted by: Richard Powers at 02/06/2010 01:21:54 PM
Yoy had a deduction for buying a water heater. will that apply to 2010? Where is it diascussed? Thank you
Posted by: c.e. scott at 02/07/2010 05:03:18 PM
i ve rec a lump sum settlement from my prev employer since they are no longer going to pay for my senior advantage med coverage. they have deducted several hundred dollars for soc/medicare. i retired in 1984, do i have to pay this tax?
Posted by: Marie at 02/07/2010 07:45:58 PM
Can one claim both the energy tax credit and the educational credit on 2009 tax forms.
Posted by: sanny at 02/08/2010 01:27:18 AM
If your house is in foreclosure how does this affect filing an income tax report.
Posted by: Tom at 02/08/2010 08:11:29 AM
A friend of mine purchased and filed the amended 2008 return. His check was also delayed and he was actually paid interest for the time he waited for it.
Posted by: francisco gatell at 02/08/2010 04:15:59 PM
I AM 72 AND ON SOCIAL SECURITY AND I DO SOME REAL ESTATES SALES ON COMMISSION. I WILL BE RECEIVING A FORM 1099 FOR MY COMISSION INCOME IN 2009. IF I OPEN A 401K ACCOUNT, IT S MY UNDERSTANDING THAT I WILL NOT HAVE TO PAY THE SELF-EMPLOYED SOCIAL SECURITY TAX (15%). IS THIS CORRECT? PLEASE ADVISE.
Posted by: Carol Bayard at 02/09/2010 04:31:28 PM
I was not allowed by Turbo TAx to deduct the expense of Lasik surgery. I understand that this is a deductible expense. Am I correct?
Posted by: james clanton at 02/10/2010 10:01:10 PM
If a RMD of $6,000 is required from a traditional IRA for 2009 to be paid by 4/15/11, is one permitted to convert the total traditional IRA in 2010 to a roth ira and pay the total taxes for 2010 filed by 4/15/11? the RMD would be included in the total conversion. I am over 75 years of age and have no earned income.
Posted by: james clanton at 02/10/2010 10:22:32 PM
If one started a Roth IRA 8 years ago and he has a loss of 50% of over the principal amount invested initialy, how does the IRS allow recovery of the losses? Is one permitted to close it and recoup the losses? Is one permitted to recoup any of the losses without closing it? If one is required to close it , is he allowed to open a new Roth? Is an invester permitted by the IRS to have more than one Roth?
Posted by: james clanton at 02/10/2010 10:30:59 PM
Is a person 75 yrs. with no earned income permitted by the IRS to open a Roth IRA with conversions from a traditional IRA by paying the taxes required in 2010?
Posted by: MICHAEL at 02/11/2010 11:39:48 AM
I AM ON SSD AND I RECENTLY PURCHASED A HOME USING MY VA BENIFITS. I USALLY DONT FILE TAXES BUT WANT TO CLAIM THE 8,000.00 CREDIT HOW DO I DO THIS.
Posted by: Milt at 02/11/2010 02:45:27 PM
I'm an individual with some promissory notes from a mortgage company that went bankrupt and is slowly liquidating. The return is only estimated and could take several years. How and where do I report this?
Posted by: kevin mccormally at 02/17/2010 09:21:27 PM
Kevin McCormally of Kiplinger here with an answer for Jack who wonders if his son who lives in Taiwan and works in Afganistan and who sends money back to Mom and Dad to supplement their social security can claim Mom and Dad as dependents on his tax return. The answer is: Maybe. Parents are among the relatives that don't have to live with someone to be considered his or her dependent. The key is that your son provide more than half your support that that your income (individually) be less than $3,650 in 2009 (tax-free Social Security benefits don't count as income for this test). If you pass these these tests you an qualify to be his dependents. If he can claim both of you, that would reduce his taxable income by more than $7,000.
Posted by: kevin mccormally at 02/17/2010 09:24:20 PM
Kevin McCormally of Kiplinger here with an answer for Roger who is frustrated at how long it's taking the IRS to get him his $8,000 first time home buyer credit claimed on an amended 2008 return. Since you've already claimed it on your 2008 return, there's no need to do anything on your 2009 return. In fact, claiming it again could really foul things up. The IRS is slow in issuing these checks because the agency discovered a whole lot of fraud going on -- folks claiming the credit who didn't deserve it -- and is requiring more documentation and being careful to actually took at it before issuing the checks. Be patient. You'll get your money.
Posted by: kevin mccormally at 02/17/2010 09:26:53 PM
Kevin McCormally of Kiplinger here with an answer for Richard Powers who wonders if the tax credit for energy efficient appliances applies 2010 purchases as well as 2009 purchases. Yes it does and water heaters can qualify for a credit worth 30% of the qualifying cost, up to a top credit of $1,500. You'll find details here: http://www.energystar.gov/index.cfm?c=tax_credits.tx_index
Posted by: kevin mccormally at 02/17/2010 09:33:28 PM
Kevin McCormally of Kiplinger here with an answer for Marie who wonders if she can claim both the energy credit and an educational credit on her 2009 return. Absolutely. You use form 5695 to claim the residential energy credit http://www.irs.gov/pub/irs-pdf/f5695.pdf and form 8863 for the education credit: http://www.irs.ustreas.gov/pub/irs-pdf/f8863.pdf
Posted by: kevin mccormally at 02/17/2010 09:41:55 PM
Kevin McCormally of Kiplinger here with an answer for Sanny who wonders how having a house in foreclosure affects ones income tax return. It doesn't. Now in the past if the foreclosure led to the discharge of part of the debt -- as was often the case if the house could not be sold for as much as was owned on the mortgage -- then on the return for that year part or all of the discharged debt would have to be reported as taxable income. But, when it comes to principal residences -- not vacation homes or rental property -- there is no tax on up to $2 million of discharged indebtedness for 2007 through 2012. Hope this helps.
Posted by: kevin mccormally at 02/17/2010 09:48:21 PM
Kevin McCormally of Kiplinger here with an answer for francisco gatell who wonders whether self-employment income he contributes to a solo-401(k) plan escapes the Social Security and Medicare tax. Sorry, but no. Such contributions are sheltered from the federal income tax, but not the 15.5% Social Security and Medicare levy. One other thing: to make a contribution based on your 2009 income, the 401(k) would have had to be opened by 12/31/09. You do still have time to open and contribute to a SEP-IRA. You're okay as long as you do so by the tax deadline.
Posted by: kevin mccormally at 02/17/2010 09:50:43 PM
Kevin McCormally of Kiplinger here with an answer for Carol Bayard who wonders why TurboTax didn't let her deduct the cost of Lasik surgery. I'm not sure, but I've got a suspicion. Although medical expenses like the cost of Lasik surgery are deductible, almost no one gets a tax benefit. That's because most taxpayers don't itemize deductions...and you have to itemize to claim medical expenses. And, even if you do itemize, medical expenses are deductible only to the extent that the total of your unreimbursed expenses exceeds 7.5% of your adjusted gross income. So, if your AGI is $100,000, the first $7,500 of expenses don't really count.
Posted by: kevin mccormally at 02/17/2010 09:54:23 PM
Kevin McCormally of Kiplinger with a bunch of answers for james clanton who has a bunch of questions about IRAs. First, yes it's possible to deduct IRA losses, but it's very difficult. To have a loss you must close all of your traditional IRA and compare the amount you receive (including any previous distributions) to the total of the nondeductible contributions you have made. If you've never made a nondeductible contribution, you can't have a loss...since you didn't pay tax on any of the money in the IRA, the fact that there's less of it doesn't generate a tax loss. Now, if you had made nondeductible contributions and you recover less than the total of those contributions, you have a loss. But, the IRS says it's not an investment loss but rather a miscellaneous expense, deductible only if you itemize and then only to the extent that all of your miscellaneous expenses exceed 2% of your adjusted gross income. As to your questions about Roth IRAs, closing your traditional IRAs has no impact on your right to contribute to a Roth. And, you can have as many Roth accounts as you want. You simply can't contribute more than $5,000 a year ($6,000 if you'll be 50 or older by the end of 2010) in total to the accounts.
Posted by: kevin mccormally at 02/17/2010 09:59:29 PM
Kevin McCormally of Kiplinger here with an answer for MICHAEL who normally doesn't have to file a tax return but wants to this year to claim a first-time home buyer credit. No problem. Just file a return reporting any taxable income you received for the year, even it the total is too small to demand a return. Then include a Form 5405 (http://www.irs.gov/pub/irs-pdf/f5405.pdf) and the required documentation to claim the credit. The home buyer credit is fully refundable meaning if you owe no tax, you'll receive the full amount as a refund.
Posted by: kevin mccormally at 02/18/2010 08:07:28 PM
Kevin McCormally of Kiplinger here with an answer for c.e. scott who wonders why Social Security and Medicare taxes were withheld from a lump sum payment he received from an employer from which he retired 26 years ago. Good question. All we can figure is that your former employer considers this payment some sort of deferred compensation from your days as an employee and believes the taxes must be paid. Your employer probably paid the same amount you did, since that tax is split 50/50 between employer and employee. I suggest you contact the benefits office of your former employer and ask official there the same question you asked here. If it's a mistake, it will save both you and the company some money.
Posted by: Taylor at 03/23/2010 02:52:16 PM
I was in the same boat: purchased in summer 2009, filed an amended return for 2008, but didn't receive the rebate check until early February 2010. I did not realize the $8,000 will reduce my basis. Thanks. You might have stressed the interest received on the $8,000 is taxable. Also, I hope everyone taking advantage of the credit realizes the home must remain your primary residence (except for a few major life events) for 3 years or else you'll need to REPAY the credit.
Posted by: Don at 04/25/2010 11:59:48 AM
I see a lot about first time home buyers credit but can't find anything about how to check if the check has been sent or how long it takes after filing for it to receive it. Any ideas?