First-Time Home Buyer Tax Credit

 

A tax credit of up to $8,000 is now available for qualified first-time home buyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009. Unlike the tax credit enacted in 2008, the new credit does not have to be repaid.

I find it interesting that many Realtors and buyers I talk with lately either don’t understand the $8,000 Home Buyer Tax Credit, or they think the money is a tax deduction. If people in the real estate industry don’t understand this program, described by many as the best thing to happen to home buying since the inception of FHA and VA financing, then how can the average home buyer understand what the tax credit means?

Here’s a simple breakdown of how the $8,000 tax credit, (not tax deduction), works:

Buy any home this year and close by November 30, 2009, and the Internal Revenue Service will give you a tax credit of up to $8,000 on your 2009 taxes. For example, if you owe the IRS $6,000 for 2009 taxes and you’re eligible for the $8,000 credit, you would be refunded $2,000. If you owe nothing on your 2009 return, you would receive the entire amount of $8,000.

Some points to note:

• A first-time buyer is defined as someone who has not owned a home during the last three years.
• The home must be used as the primary residence.
• The credit is based on 10 percent of the purchase price, not to exceed $8,000.
• There may be a recapture clause if you sell your home within the first three years of ownership.
• Income limits may reduce the amount of credit you receive.
• Remember that the $8,000 does not have to be repaid, and you are free to use the money for whatever you’d like. Financially savvy home owners may use it to pay down their mortgage principal or create a savings account for unexpected repairs.

For more information, check out  www.federalhousingtaxcredit.com.  There is an informative FAQ page.  Remember, all of the above information is a general guideline, and is not meant to substitute for the advice of your accountant or tax professional.