First-Time Home Buyer Tax Credit Ends December 1, 2009
Qualified first-time buyers have an opportunity to take up to an $8,000 tax credit if they purchase a principal residence and settle/close on it before December 1, 2009. With today's low interest rates, affordable home prices and good selection of homes on the market, the tax credit should make first-time buyers take notice. Here's why:
Qualified first-time buyers have an opportunity to take up to an $8,000 tax credit if they purchase a principal residence and settle/close on it before December 1, 2009. With today's low interest rates, affordable home prices and good selection of homes on the market, the tax credit should make first-time buyers take notice. Here's why:
- It's a credit, not just a deduction. Your total tax bill -- rather than your taxable income -- is reduced by up to $8,000. And if your tax bill is lower than the credit you qualify for, you’ll get a refund!
- You don't have to pay the credit back (unlike the $7,500 credit that was available through part of 2008), providing the home remains your principal residence for at least three years.
- The credit is available to first-time buyers and those who have not owned a principal residence within the three years prior to the closing/settlement date.
- The beauty of the tax credit is you can make it worth so much more than its face value, depending on how you use it. For example, you could use the credit to prepay $8,000 of mortgage principal, shortening your loan term and saving thousands of dollars in interest expense.
The amount of the credit is limited to 10% of the purchase price of the home, but no more than $8,000 (or $4,000 for married filing separately). The full credit is available to married joint-filers (and those with equivalent filing status) with Modified Adjusted Gross Income (MAGI) up to $150,000, and to other filers with MAGI up to $75,000. The credit is phased out and disappears completely for MAGIs more than $170,000 (joint filers and equivalent) or $95,000 (others).
FIRST-TIME HOMEBUYER TAX CREDIT Frequently Asked Questions
In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to purchase a home. The credit was designed as a mechanism to decrease the over-supply of homes for sale. For 2009, Congress has increased the credit to $8000 and made several additional improvements. This revised $8000 tax credit applies to purchases on or after January 1, 2009 and before December 1, 2009.
Tax Credits -- The Basics
1. What’s this new homebuyer tax incentive for 2009?
The 2008 $7500, repayable credit is increased to $8000 and the repayment feature is eliminated for 2009 purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home for $75,000, the credit would be $7500. It is available for the purchase of a principal residence on or 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 a 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 the income items and exemptions and make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax due. ($9,500 - $8000 = $1500)
4. So what happens if the purchaser is eligible for an $8000 credit but their entire income tax liability for the year is only $6000?
This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was $6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference.
