The $8000 First Time Home Buyer Tax Credit
You’ll remember that last year, Congress passed a $7,500 tax credit for first-time home buyers with the caveat that the credit must be repaid over 15 years. For about 5 minutes, they discussed a $15,000 credit to ALL home buyers, but that didn’t pan out. Instead, we have an $8,000 First-Time Buyer Tax Credit.
The new $8000 credit has replaced the old one for any home purchased by a first-time buyer on or after Jan. 1, 2009 and before Dec. 1, 2009. This credit will not require repayment.
The old credit does still apply to first-time home buyers who made their purchase between April 8, 2008 and Dec. 31, 2008 and will, unfortunately, require repayment.
The definition of “first-time home buyer” for the purposes of this credit is anyone who hasn’t owned another main home anytime during the three years prior to the date of purchase. Meaning, if a buyer purchases a home today, they cannot take the credit if they owned or had ownership interest in a home anytime from Feb. 23, 2006 through today. But, they could have owned a home prior to February 2006 and still qualify as a “first-time home buyer.” Married joint filers must both meet the first-time home buyer criteria to take credit on a joint return.
A House is Not Always a Home…
Now that the “first-time” portion is defined, the definition of “home” must be explained in the context of this credit. The law requires that the home be the “main home” meaning you spend 50% or more of your time there. It can be a condo, single-family detached, co-op, townhouse or something similar. It must also be located in the United States. Vacation homes and rental properties are not eligible. If the home is a new construction, the “purchase date” is the date you occupy the home.
The new credit is an $8000 refundable tax credit meaning that if your total tax liability in the given year is less than $8000, the IRS will send a refund for the balance.
There are a few restrictions on who can take the credit.
If any of the following scenarios apply, you may not take the credit:
- Your income exceeds the phase-out range. This means joint filers with Modified Adjusted Gross Income (MAGI) of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
- You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
- You stop using your home as your main home.
- You sell your home before the end of three years
- You are a nonresident alien.
There are also more limits on income. Above, it lists $170,000 and $95,000 as the limit for married and single filers’ MAGI. There is a phase-out period before those limits are met. For single filers, the phase-out starts at $75,000 and for married filers it begins at $150,000. This means that for singles making over $75,000 and couples making over $150,000, the credit is proportionately reduced as incomes approach the limits. So if a couple makes $165,000, the excess amount is used to create the fraction 15,000/20,000 (.75) which is then multiplied by the credit amount. Seventy-five percent or $6,000 of the credit would be disallowed. They would get a $2,000 credit. Clear as mud, right?? Ask your tax accountant for more help!
More provisions? It’s got them. If a buyer takes the tax credit and then sells the home prior to the end of three years of ownership, the tax credit must be repaid. This is to prevent flipping homes in order to get the credit.
The credit can be claimed on your 2008 tax return (to be filed by April 15, 2009), an amended 2008 tax return, or your 2009 tax return.