First time home buyer tax credit

Tax Credit at a Glance

   

 The tax credit is available for first-time home buyers only.

 The tax credit does not have to be repaid.

 The tax credit is equal to 10% of the home's purchase price up to a maximum of $8,000.

 The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.

 Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

   

Frequently Asked Questions

   

Who is eligible to claim the tax credit?

First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

   

What is the definition of a first-time home buyer?

The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases 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.

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.

   

How is this home buyer tax credit different from the tax credit that Congress enacted in July of '08?

The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.

   

How do I claim the tax credit? Do I need to complete a form or application?

Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return. No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests.

   

What types of homes will qualify for the tax credit?

Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

 read that the tax credit is "refundable." What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even the entire amount of the refundable tax credit. For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

   

I bought a home in 2008. Do I qualify for this credit?

No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit.

   

The Law's Other Provisions

In addition to the tax credit, the American Recovery and Reinvestment Act of 2009 has several other provisions that will benefit home buyers and the housing market. The legislation:

   

 Will help home buyers in high-cost markets by extending the FHA, Fannie Mae and Freddie Mac loan limit of $729,750 through the end of 2009.

   

 Allows state housing finance agencies to help buyers at closing by advancing the credit as a loan using proceeds from tax-exempt bonds.

   

 Extends the tax code section 25C credit for energy-efficient home improvements through the end of 2010; increases the credit rate from 10 percent to 30 percent; raises the lifetime cap from $500 to $1,500; expands the list of eligible improvements.

   

 For 2008 operations, expands the net operating loss carry back period from two years to five years for small businesses (businesses with average gross receipts of no more than $15 million over the previous three years).

   

 Temporarily allows exchange of Low-Income Housing Tax Credit allocating authority for tax-exempt grants and appropriates $2 billion in HOME funding for affordable housing projects.

   

 Provides a "patch" for the Alternative Minimum Tax for tax year 2009.

   

 Increases bonus depreciation and section 179 small business expensing for business investment in 2009.

   

 Increases New Markets Tax Credit allocating authority for 2008 and 2009.

   

 Delays for one year—from 2011 to 2012—the start of the three percent government contractor withholding requirement.

 

   

Call or email Brian Leavitt for more details. Cell: 206-999-2289 email: brian@northstone.net

   

Northstone Real Estate Inc