10 First-Time Homebuyer Tax Credit Questions and Answers
As part of new stimulus plan, the First-Time Homebuyer’s Tax Credit has increased from $7500 to $8000 with some additional improvements. This revised $8000 tax credit applies to purchases made on or after January 1, 2009 and before December 1, 2009.
Now, for 10 basic Questions and Answers about the Homebuyer Tax Credit:
1. What is the new homebuyer tax incentive for 2009?
The amount of the tax credit has increased to $8000 (from $7500 in 2008) and the repayment features has been eliminated for 2009 purchasers. Any home purchased for $80,000 or more qualifies for the entire $8000. If the house costs less than $80,000 the credit is equal to 10% of the cost, e.g. if a home is purchased for $75,000, then the tax credit would be $7500. The credit is available for the purchase of a principal residence only, on of after January 1, 2009 and before December 1, 2009.
2. Who is eligible?
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had any ownership interest in a home in the three years previous to the day of the 2009 purchase.
3. How does the tax credit work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s income tax return. Thus, a qualified purchaser would figure out all of his/her income items and exemptions and make all the calculations required to figure out his/her tax due. Then, once the total tax owed has been computed, tax credits are applied to reduce the total tax bill. For example, if a person has a total tax liability of $9500, a $8000 credit would wipe out all but $1500 of the tax due.
4. What happens if the purchaser is eligible for an $8000 credit but the entire tax liability due is only $6000?
This particular tax credit is what is known as a “refundable” credit. In other words, if the purchaser’s total tax liability was $6000, the IRS would actually send the home owner a check for $2000!
5. Is there an income restriction?
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the credit if their income is no more than $75,000. Married couples who file a joint return may have income of no more than $75,000.
6. What is the definition of “principal residence?”
Generally, a principal residence is the home where an individual spends most of his/her time (generally defined as more than 50%.) It is also defined as “owner-occupied housing. The term includes single family detached housing, condos or co-ops, townhouses or any similar type of new or existing housing. Even some houseboats or manufactured homes count as principal residences.
7. Are there restrictions on the location of the property?
Yes, the home must be located in the United States. Property located outside the U.S. is not eligible for the credit.
8. Are there restrictions related to the financing for the mortgage on the property?
Most financing arrangements are acceptable and will not affect eligibility for the credit. In 2008 purchasers were ineligible for the $7500 credit if the financing was obtained by means of mortgage revenue bonds but Congress eliminated that for 2009.
9. Do I have to repay the 2009 tax credit?
NO. There is no repayment for the 2009 tax credits.
10. Do 2008 purchasers still have to repay their tax credits?
YES. The $7500 credit in 2008 was more like an interest free loan. All eligible purchasers who claimed the 2008 credit will still be required to repay it over 15 years, starting with their 2010 tax return.
For more questions and answers, plus examples, click here.
The stock market has had gains for five weeks in a row, economic indicators are increasingly positive, and houses are selling – don’t wait to take advantage of this tax credit. The time is now! Call me at 703.927.4554 for more information on making your buying dream a reality.
Thanks for stopping by,