The federal economic stimulus package passed in February 2009 provides for an $8,000 tax credit for first-time home buyers. The program defines a “first-time home buyer” as someone who has not owned a home in the three years prior to his or her purchase, so even if you have previously owned a home you can still qualify if you haven’t owned your principal residence for the past three years.
If you're looking for an explanation of the more recent Refinance Program and Loan Modification Program, we've discussed it here. Also, there's a great summary on the ABC News website of all the housing recovery programs.
The tax credit is a significant benefit– a tax credit equal to 10% of a home’s purchase price, up to a maximum of $8,000 against the first $80,000 of the purchase. Note that it is an actual credit against your taxes, not a deduction. A tax deduction comes off the top of your taxable income, reducing that taxable income and subjecting less of it to the applicable tax rate. But a tax credit is an actual dollar-for-dollar reduction in the tax that you owe, and even applies if your federal income tax is less than $8,000. Thus, if you get the fully $8,000 credit, and your taxes are $5,000, you will get a $3,000 federal tax refund. Also, note that you do not need to pay the credit back, unlike the smaller tax credit that was included in legislation last year. You only need to pay the credit back if you move out or sell the home you purchased within three years.
Who qualifies? The financial qualifications are a little complicated, based on what the government considers your taxable income. The simplified answer is that you can get the full $8,000 tax credit if your taxable income is below $75,000 if you are filing singly, and $150,000 if you are filing jointly. If your taxable income is within $20,000 of those thresholds (i.e., $95,000 for single filers, $170,000 for joint filers), you can get a portion of the tax credit. But if your taxable income is above $95,000 filing singly, or $170,000 filing jointly, you are ineligible for the tax credit. If you think you might qualify, you should check with your accountant.
The program is available only for a limited time. To get the credit, you need to close on your home between January 1, 2009 and December 1, 2009. For new construction, you need to occupy the home by December 1, 2009.
UPDATE: Here is an FAQ on the $8,000 Tax Credit
Q. I bought a home once before, so I’m not a first-time home buyer. Can I still get the credit?
A. Yes. So long as you have not owned a primary residence in the past three years prior to closing on your new property, you qualify as a “first-time home buyer” under the program.
Q. Does my condo qualify?
A. Yes, condos and cooperative apartments qualify. So do trailers, multi-families, mobile homes, houseboats, or any other type of residence.
Q. When do I have to buy to qualify?
The $8,000 tax credit is available for homes purchased between January 1, 2009 and December 1, 2009 (note: not December 31). For resale homes, you have to have closed in that time period. For new construction, the applicable date is the day you move in.
Q. How much tax credit will I get on a $300,000 purchase?
A. The tax credit is 10% of the purchase price, up to a maximum $8,000 credit. So whether it’s a $300,000 house or a $150,000 house, you get the same $8,000 credit.
Q. How does a “tax credit” work? Is it the same as a deduction?
A. A tax credit is very different from a deduction. A deduction reduces your taxable income, saving you from paying taxes on the deducted income. A tax credit is an actual offset to your taxes: if you owe $10,000 in taxes, and you qualify for the $8,000 tax credit, your tax payment will be reduced dollar-for-dollar to $2,000.
Q. Will I get the tax credit if I don’t owe any taxes?
A. Yes. If you qualify for the credit, and your taxes are below $8,000, you’ll get a tax refund.
Q. Is this available to anyone, or are there income restrictions?
A. The tax credit is not available if you had a modified adjusted taxable income of more than $95,000 if you file singly, or $170,000 if you file jointly. If you have taxable income lower than that, you’ll get at least part of the credit. If your income is below $75,000 filing singly, or $150,000 filing jointly, then you’ll get the whole $8,000 credit. If your income is between $75,000 and $95,000 filing singly, or $150,000 and $175,000 filing jointly, you’ll get a partial tax credit. Because the income qualifications are complicated, you should talk to your accountant if you think you are close to the thresholds.
Q. Can I get the tax credit on my 2008 taxes?
A. Amazingly, yes. If you purchased the home in 2009, but have not yet filed your taxes, you use the new “Form 5405” to apply for the credit on your 2008 taxes. The IRS Form 5045 for claiming the tax credit is here. Talk to your accountant about whether you can claim the credit on this year's taxes.
Q. I bought my home last year, do I get a credit?
Sort of. The new $8,000 tax credit applies only to homes purchased after January 1, 2009. However, the government did offer a $7,000 tax credit last summer for homes purchased after April 8, 2008, but that tax credit acts as a 15-year interest-free loan, and must be repaid over time. Talk to your accountant about whether you qualify.
Q. Do I have to pay this credit back?
No, unlike the tax credit program announced last summer, this is a true credit. You only have to pay it back if you move or sell your home within three years after closing.
Q. Can I get the credit if I buy the home from a relative?
No. To avoid incentivizing fraudulent transfers, the credit does not apply if you bought the home from your spouse, parents, grandparents, children, or grandchildren. Also, you don’t get the credit if you purchased from a corporate entity in which you have more than 50% ownership.
Links:
The new IRS Form 5045 for claiming the tax credit is here.
Money Magazine has a great FAQ explaining the program.
You can find a helpful FAQ put out by the National Association of Home Builders here.
Fox Business story on the announcement.
CNN Story on the announcement.
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