First Time Homebuyer's Tax Credit

Breaking News!!

Homebuyer tax credit extended until April 2010

Find out more at the IRS website

Thanks to Uncle Sam, first time homebuyers are now eligible to receive a tax credit equal to 10% of the purchase price (maximum credit of $8,000) of their home when they purchase through December 1, 2009. The tax credit is in addition to any refund that they may already qualify for and the repayment stipulation from the 2008 homebuyer tax credit has just been repealed. Additionally, homebuyers can claim the tax credit on their 2008 tax returns even if they purchase through 2009 - as long as it is included in their tax returns filed by April 15th!

This means that qualifying first time homebuyers will now receive an extra incentive to purchase a home this coming year.  So, to help shed some light on how the credit works - here are some brief points:

> Who is Considered a First-Time Home Buyer?

Pretty much any type of home qualifies—as long as it is a principal residence (as defined by the IRS). Single family, town homes and condos, manufactures or mobile homes and yes, houseboats all qualify! A newly constructed home purchased from a homebuilder is determined by the date on the HUD 1.

However, If a borrower is building a home (for a principal residence) and owned the land prior to January 1, 2009, the tax code says that the “purchase date” is the date that the owner “first occupies” the home which must be between January 1 and December 1, 2009.

> Is It a Tax Credit or a Loan?

If someone purchased a home between April 9 and December 31, 2008, they called it a “tax credit” because you get the tax credit money upfront—but it really was an “interest-free” loan which is paid back for the next 15 years or upon the sale of the home (within 3 years of purchase). The “payback” is based upon the balance owed and not the entire tax credit received.

The next set of rules applies if a home is purchased between January 1 and December 1, 2009. It is a true tax credit and does not have to be repaid. However, if the home is sold within 3 years of the purchase date, the entire tax credit has to be paid back.

Simply calculation here: 10% of the home’s purchase price or a maximum of $8,000. A tax credit can be claimed regardless if they obtain a mortgage, a tax-revenue mortgage or the buyer paid cash when purchasing the home.

This is a little more complicated and first-time homebuyers should seek advice from a tax expert. Here is the “simple” explanation based on several scenarios but keep in mind that the magic income number is always based on Modified ADJUSTED GROSS INCOME (MAGI). You will find that the MAGI income on the following lines of the 3 tax forms.

IRS 1040 Form - line #37
IRS Form 1040A - line 21
IRS 1040EZ - line 4

Single taxpayer: MAGI of $75,000 or less
Married taxpayer: MAGI of $150,000 or less

However, there is a provision for those singe and married who EXCEED the income limits to claim a partial tax credit. A “tax credit formula” has been created to determine the dollar amount. For example, if a single tax payer’s MAGI is $82,000, they could get a partial tax credit of $5,200.

Now, here’s the biggie: Taxpayers can choose to claim their tax credit on either their 2008 tax returns or wait until the 2009 tax year to file. For example, if they exceed the income limit in 2008 (which would only qualify them for a partial credit) but their income has been decreased in 2009 due to a temporary layoff or cut back in over time, they can wait until 2009 to claim the tax credit (for the full tax credit).

Downloadable Resources:

        First Time Homebuyer Tax Credit Comparison Chart - Dowload for futher details

*Remember, for advice on whether or not you may qualify for the credit or partial credit, we advise that you speak with a qualified tax professional. We are not tax professionals and cannot give tax advice.