To help stimulate the economy and help recent home buyers, the government has instituted the first time home buyer tax credit under the Housing and Economic Recovery Act of 2008. The first time home buyer tax credit allows for recent home purchasers to claim a maximum tax credit in the form of a interest free loan and/or a permanent loan from the government, depending on when the home purchased.
The first home buyer tax credit applies to a home purchased between the dates of April 8, 2008 and December 31, 2008. If a home buyer purchased a home within that range they are eligible for a $7,500 maximum tax credit which can be claimed on a 2008 return. This allows for people to receive more money back on a return or have money applied to taxes owed. But this is not a free and clear plan to get $7,500 government dollars.
The tax credit, for homeowner’s who purchased a home in 2008, is an interest free loan. The interest free loan has to be paid back over a period of 15 years at $500 per year starting in 2010. The tax credit doesn’t look so appealing when viewed as a loan. But if you’re a recent purchaser and have felt the crunch of job slow downs this could be a great way to put some savings in the bank for future house payments.
The second home buyer tax credit applies to home purchased from January 1, 2009 till April 30, 2010. For these group of home buyers the tax credit has been increased by an addition $500 to total $8,000. Unlike the 2008 credit which acts as an interest free loan, the 2009 – 2010 credit is a permanent loan which does not have to be repaid.
Time for the catch. If the home is sold within 3 years then entire $8,000 is recaptured at the time of sale. So be careful if you select to use this option because if you have to sell due to financial hardship, in non equity building market place, then this will further compound the problem.
The Housing and Economic Recovery Act of 2008 provides interesting benefits to recent homeowners; but why not extend this program back to 2006 to help curb foreclosure rate? That could be a whole other topic it’s self. So if you are looking or have already purchased a home these two programs could help make life a little more favorable.
Eligibility is base more than just the date a home was purchased but the constraints are not ridged but any of the following describe you then you cannot qualify for the tax credit.
– Your income exceeds the phase-out range. This means joint filers with 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 the year.
– You are a nonresident alien.
– You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
– Your home financing comes from tax-exempt mortgage revenue bonds.
– You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.
Overview Housing and Economic Recovery Act of 2008
| Credits as of July 2008 – The follow applies to all qualified purchaes on or April 8, 2008 till December 31, 2008. Repayment begins for 2010 tax year. | Credit as of Jan 2009 – The following applies to all qualifed purchases on or after January 1, 2009 till April 30, 2009. |
| Credit Amount = Lesser of 10% of the cost of the home or $7,500. | Credit Amount = Lesser of 10% of the cost of the home or $8,000. |
| All principal residents are eligible. | All principal residents are eligible |
| Credit can be claimed on tax return to reduce income tax liability; refund received for unused amount tax return is filed. | Credit can be claimed on tax return to reduce income tax liability; refund received for unused amount tax return is filed. |
| Income limits apply – full amount of credit available for those with adjusted gross income less than $75,000 ($150,000 joint). Phase out above those caps of $95,000 ($170,000 joint). | Income limits apply – full amount of credit available for those with adjusted gross income less than $75,000 ($150,000 joint). Phase out above those caps of $95,000 ($170,000 joint). |
| No credit allowed if home financed with state/local bond funding. | Eligible for credit if revenue bond financing was used. |
| 6.67% of the credit or $500 would be repaid each year for 15 years starting with 2010 tax filing. | There is no repayment for purchases on or after January 1, 2009 and before July 1, 2009. |
| If home is sold before 15 year repayment ends, the outstanding balance is recaptured upon sale. | If home is purchased in 2009 and sold within 3 years the entire amount is recapture on sale. |
| Program ends July 1, 2009. | Program ends December 1, 2009. |
Source: IRS.gov
10 Comments
IS THE NEW $ 8,000 FIRST TIME BUYERS CREDIT TAXABLE ????
Hi Richard, do you mean is it taxable as income in the following year as income?
This tax credit is in addition to your income tax rebate after filing?
My husband and I have gotten about 4800 back for the past 2 years on our income taxes. So does this mean we will get $12,800 in April of 2010 if we buy a house in 2009?
Hi Erika, as far as I understand it yes. One of my clients who purchased in 2008 did an amended tax return and is currently waiting for the $7,500 additional.
YES …THATS EXCATLY WHAT I MEAN,,,,WILL IT BE CONSIDERED INCOME NEXT YEAR IF I RECIEVE THE 8000 THIS YEAR???
I do not believe it will count towards income in the 2009 because its not income, its a 2009 tax credit and that’s not classified as income.
I have 2 questions. “There is no repayment for purchases on or after January 1, 2009 and before July 1, 2009.” and yet below it says program ends Dec. 2009. Which is it? The credit only applies if you purchase before July 1, 2009 or before Dec. 2009?
Also, can two primary home owners apply for 50% of the 10% credit of the purchase of the home? i.e. Home cost is 150K. Each can apply for credit of $7500? (each?)
Hi JoAnne, I corrected the mistake. The 2009 tax credit applies to home purchased on or before December 1, 2009, http://www.irs.gov/newsroom/article/0,,id=204671,00.html.
After reviewing the IRS’s website it appears both tax payers can claim for the credit if and only if they are first time home buyers amd where using the home as their primary residence. There are many scenerios on the IRS’s website at http://www.irs.gov/newsroom/article/0,,id=206294,00.html which may help.
if you are relocated when do you have to pay the 2008 tax credit back
Hi Mike, at anytime the property has to be sold, within the 3 recapture period, then the homebuyer tax credit would have to be repaid no matter the reason. To avoid have to repay the credit back, and you’re still forced to relocate, you may want to check into renting the property.
One Trackback
[...] walking trails, volleyball, chipping green and MORE. Quick stop to MSFT. Take advantage of the First Time Home Buyer Tax Credit before it expires in April [...]