$8000 Home buying Tax Credit details and Restrictions

Details on the Governments new $8,000 Home Buyer Tax Credit

There seems to be some confusion still regarding the new Homebuyer Tax Credit  available.  Also, in researching this I discovered that most sites, blogs, etc. neglect to mention a key restriction on qualifying for this refundable tax credit regarding home purchase from a related party.

How Much, Who, and When

1. Eight grand, new buyers: This credit is equivalent to 10 percent of the purchase price of the home, although it's capped at $8,000, and applies only to first-time home buyers and principal residences (or $4,000 for married couples filing separately). But unlike an earlier $7,500 home buyer tax credit, this one does not have to be repaid.

2. First time buyers defined: For the purpose of this legislation, a "first-time home buyer" is someone who hasn't owned a principal residence for three years before buying a house. (The date of purchase is considered the day that the title is transferred.) That means if you've owned a vacation home, but not a principal residence, within the past three years, you would still qualify for the credit.

3. 2009 buyers only: Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit. Anyone who bought a home last year won't be able to take advantage of it.  Please reference #2 above, the purchase date is the Title Transfer Date.

4. Income limits: The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less to qualify for the full credit, that's $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits.

5. Refundable: Because the tax credit is "refundable," qualified buyers can take advantage of it even if they don't have much tax liability.  This means, for example:  that if you paid $1,000 in federal tax, and are eligible for the full $8,000 credit, you would receive a $7,000 refund check (lookout Vegas!)

6. Recapture: Buyers have to own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government. (Exceptions will be made in certain cases, such as death or divorce.)


Frequently Asked Questions (FAQ's)

What's a Primary Residence?

A primary residence is a residence in which an individual lives most of the time. A primary residence can be a house, condominium, co-operative apartment, houseboat, or mobile home.
Because the tax credit is for people who purchase their primary residence, individuals may qualify for the tax credit even if they own a vacation home or rental property as long as those properties were not their primary residence for at least three years preceding the purchase of their new home.

Who Cannot claim the credit?

The first-time homebuyer tax credit is not allowed under any of the following circumstances:
•  The property is acquired from a related person as defined (26 U.S.C. § 36(c)(3)(A)) (see below);
•  The property is acquired by gift or inheritance (26 U.S.C. § 36(c)(3)(A));
•  The buyer is a nonresident alien (26 U.S.C. § 36(d)(1)); or
•  The buyer disposes of the property (or the property ceases to be the principal residence of the buyer and, if married, the buyer’s spouse) before the end of such taxable year (26 U.S.C. § 36(d)(2)).

What acquisitions from related persons do not qualify for the first-time homebuyer tax credit?

A buyer is ineligible for the first-time homebuyer tax credit if the property is acquired from certain related persons, including, but not limited to, the following:
•  The buyer’s spouse, ancestors (such as parents and grandparents), or lineal descendants (such as children or grandchildren);
•  A corporation in which the buyer owns more than 50% of the outstanding stock; or
•  A partnership in which the buyer owns more than 50% interest. (26 U.S.C. § 36(c)(3)(A) (citing §§ 267 and 707).)

As with all real estate related decisions where tax and legal considerations are relevant factors, you should consult with your attorney or tax advisor.  If you are a Realtor or Real Estate agent or Broker advising a buyer in regards to utilizing this credit or recommending a purchase partially due to this credit, I strongly suggest you have a signed document that specifically mentions your client should consult a tax advisor and legal advisor.