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The New Home Buyer Tax Credit and You

By manybanking.com Staff
In February 2009, President Obama signed the American Recovery and Reinvestment Act into law.

Category Product: 
Mortgages
Category Finance: 
Personal Finance
Keywords: 
Mortgages, Tax Credit, Buying a Home, New Home, Home Loan, First Time HomeBuyer, Obama, Housing Market
Introduction: 

By manybanking.com Staff
In February 2009, President Obama signed the American Recovery and Reinvestment Act into law.

The $787 billion stimulus bill included an $8,000 first-time homebuyer tax credit. This tax credit is intended to help revive the declining real estate market by enticing new homebuyers into the market. This program combined with record low mortgage interest rates, means that there may never be a better time for first-time homebuyers to consider taking the plunge. 

Here are some of the finer points of the tax credit:

Eligibility: According to this legislation, a first-time homebuyer is defined as someone who has not owned a primary residence (in the United States) for at least three years. This includes spouses of married persons. Those who owned a vacation home or an investment property during this time are still eligible for the tax credit.

Credit Amount: The credit is for 10 percent of the home’s purchase price or $8,000, whichever is less. So, if you purchase a home for $70,000, for example, the tax credit is for $7,000. Homes purchased for over $80,000 are eligible for the full $8,000 credit. Married persons filing separately are each eligible for half of the credit amount. The credit is refundable, which means homebuyers will receive a check for the amount that exceeds their tax liability. If you get a tax refund, the credit will be included in that check.

Income Limitations: Buyers are subject to modified adjusted gross income (MAGI) limits to qualify for the full tax credit. Single buyers cannot earn more than $75,000 in the previous year, and married buyers who file jointly cannot earn a combined income of more than $150,000. A reduced tax credit is available for those who earn less than $95,000 or $170,000 (if married filing jointly).

Time Window: The 2009 tax credit is only available on primary residences purchased between January 1, 2009 and December 1, 2009.

Stay Requirement: The home purchased must remain the homebuyer’s principal residence for at least 36 months from the date of purchase in order to retain the 2009 tax credit. If the homebuyer sells within this period or moves to another primary residence, the tax credit must be repaid on the tax return for the year of the sale or move. Some exceptions for extraordinary events like death or divorce may be made.

How to Claim: The 2009 tax credit can be claimed on either the 2008 or 2009 tax form. Form 5405 is used to file the claim for both tax years.

Exclusions: The tax credit is not applicable if you inherited the home or received the home as a gift. A home purchased from a close relative is also excluded. Nonresident aliens are not eligible for the tax credit.

The 2009 first-time homebuyer tax credit expanded the 2008 first-time homebuyer tax credit, which had a maximum of $7,500. This credit was in effect for homes purchased between April 8, 2008 and December 31, 2008. Unlike the 2008 credit, however, the 2009 credit does not have to be repaid in 15 annual installments.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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The $787 billion stimulus bill included an $8,000 first-time homebuyer tax credit. This tax credit is intended to help revive the declining real estate market by enticing new homebuyers into the market. This program combined with record low mortgage interest rates, means that there may never be a better time for first-time homebuyers to consider taking the plunge. 

Here are some of the finer points of the tax credit:

Eligibility: According to this legislation, a first-time homebuyer is defined as someone who has not owned a primary residence (in the United States) for at least three years. This includes spouses of married persons. Those who owned a vacation home or an investment property during this time are still eligible for the tax credit.

Credit Amount: The credit is for 10 percent of the home’s purchase price or $8,000, whichever is less. So, if you purchase a home for $70,000, for example, the tax credit is for $7,000. Homes purchased for over $80,000 are eligible for the full $8,000 credit. Married persons filing separately are each eligible for half of the credit amount. The credit is refundable, which means homebuyers will receive a check for the amount that exceeds their tax liability. If you get a tax refund, the credit will be included in that check.

Income Limitations: Buyers are subject to modified adjusted gross income (MAGI) limits to qualify for the full tax credit. Single buyers cannot earn more than $75,000 in the previous year, and married buyers who file jointly cannot earn a combined income of more than $150,000. A reduced tax credit is available for those who earn less than $95,000 or $170,000 (if married filing jointly).

Time Window: The 2009 tax credit is only available on primary residences purchased between January 1, 2009 and December 1, 2009.

Stay Requirement: The home purchased must remain the homebuyer’s principal residence for at least 36 months from the date of purchase in order to retain the 2009 tax credit. If the homebuyer sells within this period or moves to another primary residence, the tax credit must be repaid on the tax return for the year of the sale or move. Some exceptions for extraordinary events like death or divorce may be made.

How to Claim: The 2009 tax credit can be claimed on either the 2008 or 2009 tax form. Form 5405 is used to file the claim for both tax years.

Exclusions: The tax credit is not applicable if you inherited the home or received the home as a gift. A home purchased from a close relative is also excluded. Nonresident aliens are not eligible for the tax credit.

The 2009 first-time homebuyer tax credit expanded the 2008 first-time homebuyer tax credit, which had a maximum of $7,500. This credit was in effect for homes purchased between April 8, 2008 and December 31, 2008. Unlike the 2008 credit, however, the 2009 credit does not have to be repaid in 15 annual installments.

—For more ways to save, spend, invest and borrow, visit MainStreet.com.

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