$8,000 First-time Home Buyer Tax Credit

The American Recovery and Reinvestment Act of 2008 authorizes a tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence or after January 1, 2009 and before December 1, 2009.

The following questions and answers provide basic information about the tax credit. If you have more specific questions, consult a qualified tax advisor or legal professional.

1. WHO IS ELIGIBLE TO CLAIM THE TAX CREDIT?
First-time home buyers purchasing any type of home – new or resale – are eligible for the tax credit. The purchase must be between January 1, 2009 and before December 1, 2009. The purchase date is considered the date when closing occurs and property title transfers.
2. WHAT IS THE DEFINITION OF A FIRST-TIME HOME BUYER?
A buyer who has not owned a principal residence during the 3 year period prior to purchase. With married couples, both party’s history is considered. For example, if you have not owned a home in the past 3 years, but your spouse has owned a principal residence, neither you nor your spouse qualifies for the tax credit. A parent may jointly purchase a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
3. HOW IS THE AMOUNT TAX CREDIT DETERMINED?
The tax credit is equal to 10% of the home’s purchase price up to a maximum of $8,000.
4. ARE THERE ANY INCOME LIMITS FOR CLAIMING THE TAX CREDIT?
The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married), and is reduced proportionally for taxpayers with MAGIs between these amounts.
5. WHAT IS “MODIFIED ADJUSTED GROSS INCOME”?
The MAGI is defined by the IRS. First, determine your “adjusted gross income”, then add to the AGI certain amounts such as foreign income, foreign housing deductions, student loan deductions, IRA contributions and higher education cost deductions.
6. WHAT TYPE OF HOME QUALIFIES?
Single-family detached homes, townhomes, condos, manufactured homes, and houseboats. A contractor built home also qualifies.
7. WHAT DOES IT MEAN WHEN THEY SAY THAT THE TAX CREDIT IS “REFUNDABLE”?
The home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. For example, if a home buyer expected a federal income tax liability of $5,000 and had tax withholdings throughout the year of $4,000, then without the tax credit, the buyer would owe an additional $1,000 come tax time. If the buyer qualified for the $8,000 tax credit he would receive a check for $7,000 when filing.
8. I BOUGHT IN 2008. DO I QUALIFY FOR THIS CREDIT?
No. But you may qualify for the $7,500 2008 credit.
9. DO I HAVE TO WAIT FOR MY 2009 TAX RETURN?
Not necessarily. If you qualify, you may increase your tax withholding (W4) in order to increase your take-home pay. This money can then be applied to the down payment.
10. IF QUALIFIED FOR CREDIT, CAN I BUY IN 2009 AND APPLY THE TAX CREDIT TO MY 2008 RETURN?
Yes. If you have already submitted your tax return, you may file an amended 2008 return claiming the tax credit. Consult your tax professional…

info provided by NAHB (National Association of Home Builders)