$8000 Buyer Tax Credit – What’s The Scoop

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It’s not the money tree to save the economy but it’s a bit of an incentive for those buyers who were just about to jump in to buying a home.

The American Recovery and Reinvestment Act has a treat for first time home buyers – even the definition of first-time buyer isn’t what you might think.

A first time buyer isn’t one who’s never, ever owned a home.  The California Association of Realtors explains it this way:  A “first-time homebuyer” is defined as any individual (or spouse) with no present ownership interest in a principal residence during the 3-year period ending on the date of the purchase of the principal residence to which the tax credit applies (26 U.S.C. § 36(c)(1)).

So you have to be purchasing a home you’ll be living in and you can’t have owned a home for 3 years prior.  In order to avoid paying this credit back, you must live in this home for 3 years.

This is a tax credit, not a tax deduction.  The significance of a tax credit is that “a tax credit is ‘refundable’ means that any credit amount not used to reduce the tax owed may be added to the taxpayer’s tax refund check.  In other words, a taxpayer may receive a tax credit even if he or she has no tax liability to offset that credit.

As an example, let’s say a taxpayer filing his tax returns on April 15 would have owed $2,000 to the IRS.  If the taxpayer can now claim an $8,000 refundable tax credit, he can expect to receive a refund check from the IRS for $6,000.”

There’s an income restriction:  “The first-time homebuyer tax credit may be restricted by the taxpayer’s income.  The tax credit starts to phase out for an individual taxpayer with a modified adjusted gross income from $75,001 to $95,000 (or $150,001 to $170,000 for joint filers).  The tax credit is eliminated entirely if an individual’s modified adjusted gross income is over $95,000 (or $170,000 for joint filers).  (26 U.S.C. § 36(b)(2).)”

Lastly, your purchase must be completed January 1, 2009 to November 30, 2009.

There are other things you should know so be sure to talk your real estate and tax professionals to explain further.

Trackbacks

  1. [...] Those handy web calculators aren’t enough.  They don’t know if you qualify for the new first time buyer program, whether an FHA loan will work, if you need a jumbo or a conforming [...]

  2. [...] First time home buyers must be using FHA-approved lenders and be buying an FHA insured home. [...]

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