The Basics on the First Time Homebuyer Federal Tax Credit for 2009

In their efforts to stimulate the economy, the Feds are offering up to an $8,000 tax credit to first-time homebuyers who purchase a home in the 2009 calendar year, and closing ON OR BEFORE NOVEMBER 30, 2009. Here are some of the details:

• To qualify as a first-time homebuyer, neither the buyer or the buyer's spouse may have owned a home that was used as a primary residence in the past 3 years. It does not need to be your truly first home, however. And you may have owned rental properties in the past three years, so long as none were used as you or your spouse's primary residence. The IRS provides an explanation and various scenarios that help provide guidance on whether one qualifies as a first-time homebuyer.
• The credit may be used for any type of residential property in the U.S. -- single-family homes, condos, co-ops, etc, but the property must be owner-occupied and used as the primary residence, usually for at least 51% of the year. So, the credit may not be claimed for the purchase of unimproved land. Certain houseboats and manufactured homes may qualify, but duplexes, unless wholly owner-occupied probably would not qualify.
• There is an income limitation of $75,000 a single person (and $150,000 for married) for use of the full credit amount. Above this income, the credit is smaller or phased-out entirely (at $95K/$170K).
• If the home is sold within three years after purchase, the entire amount of the tax credit will be recaptured upon the sale.
• There is also a cap on the amount of the credit of 10% of the value of the home purchased or $8,000, whichever is lower. So if the house is purchased for $70,000, the maximum tax credit claimed would be $7,000. (This would not be an issue in Hawaii!)

The terms of this tax benefit are similar to the up to $7,500 tax credit that was offered to purchasers of homes from April 2008 to the end of 2008. However, unlike the 2008 credit, it does not have to be repaid.

Also, it is a "refundable" credit. What this means is that if a purchaser's total tax liability is only $5000, the purchaser can still use the full credit and will received a refund of the difference between the credit and libaility. So, if entitled to an $8,000 credit, the purchaser in this scenario would get a $3,000 refund check in the mail.

AND, in certain circumstances, the tax credit may be applied immediately as a credit against closing costs.

Check with your tax accountant or other financial advisor, for further details and on how this tax credit specifically affects you and your situation. Happy Homebuying!