First-Time Home Buyer Credit

So what exactly is the first time home buyer credit all about?

First let me say that you should talk to your tax advisor or accountant about whether or not you are eligible for this tax credit. My discussion is for information only and should be verified by your tax professional.

The American Recovery and Reinvestment Acts of 2009 changes the previous first-time home buyers tax credit program in the following three ways.

The tax credit has been increased to $8000.

You must purchase a home between January 1, 2009 and December 31, 2009.

There is no repayment/recapture clause on this credit for homes sold after 36 months of occupancy and ownership.

Are you a first-time home buyer? The Tax Credit is for home buyers (either spouse if filing jointly) who have NOT owned a principle residence during the three-year period prior to the purchase. Ownership of vacation property or rental property does not disqualify home buyers from this program.

The full credit may not be available: The maximum credit is $8,000 or 10% of the home purchase, whichever is less.

Income qualifications: To qualify for the full tax credit, married couples’ modified adjusted gross income (MAGI) should be under $150,000 and single filers’ MAGI should be less than $75,000. Partial tax credits may be available for married couples with MAGI incomes of over $150,000 but under $170,000 and single filers with incomes over $75,000 but under $95,000. If married couples who qualify for the first-time tax credit file separately, they would both claim 5% of the home purchase or $4,000 each (whichever is less) on their tax returns.

Suggested strategy: Home buyers who qualify for this program, but who do not intend to purchase a home till the end of 2009, may elect to alter their tax withholdings (up to the amount of the of the tax credit) in order to save up money for a down payment. However, if the purchase of the home does not occur, the taxes must be repaid to the IRS.

Do you have to pay back the credit? No, there is no recapture or repayment clause IF the home is owned for at least 36 months.

Details on dates: The effective date of purchase for new construction (even if buyer owns title to the lot) is the date the owner first occupies the house. So even if construction began in 2008, as long as the home and buyers qualify for the tax credit, they will be eligible if they take possession any time during 2009. However, new construction bought from the builder is only eligible if the settlement date (closing) takes place between January 1, 2009 and December 31, 2009.

You may not have to wait for the money: The law allows taxpayers to elect to treat qualified 2009 purchases as a 2008 purchase so that they can receive the tax credit on their 2008 tax returns.

You get the money, taxes or not: The full amount of the eligible tax credit is refunded to the buyer, regardless of whether the buyer has paid an equivalent amount in taxes.