Urban Vue Properties ~ Blog

First time homebuyers who are “timing” the market, waiting to see if housing prices and mortgage rates continue to decline will miss out on “free” government money if they delay their home purchase until after 2009.

 

President Barack Obama signed the federal economic stimulus plan, officially known as The American Recovery and Reinvestment Act of 2009, into law on February 17, 2009.  Thanks to this Act, qualified first-time homebuyers are eligible for a tax credit equal to $8000 (or 10% of the home’s purchase price, whichever is less).

 

 

ELIGIBILITY REQUIREMENTS

Certain requirements must be met for homebuyers to qualify for the tax credit.

 

1. First Time Home Buyer:  The purchaser must be a first-time homebuyer (meaning that the buyer may not have owned a principle residence within the past three years).

 

2. 2009 Home Purchase: The home must be purchased between January 1, 2009 and December 1, 2009.

 

3. Principal Residence:  The home must be the buyer’s principal residence.

 

4. Income Limits:  The buyer’s modified adjusted gross income must be less than $75,000 for singles or $150,000 for couples.  However, buyers with higher incomes may be eligible for a partial tax credit.

 

5. Three Year Rule: Buyer must live in the house for at least three years. If the buyer sells the house in less than three years or the home ceases to be the buyer’s principle residence, the tax credit must be repaid.

 

6. No Related Sellers:  A buyer who purchases the home from a relative is not eligible for the tax credit.

 

 

HOW IT WORKS

A tax credit worth $8,000 - or 10% of the home’s value, whichever is less – can be claimed on the first-time homebuyer’s 2008 or 2009 taxes. It’s simple to apply for the credit — all you need to do is claim it on your federal income tax return.  To determine the exact amount of the tax credit, homebuyers should first complete IRS Form 5405.  Once this amount is determined it should be claimed on IRS Form 1040, Line 69.

  

If you have already completed your 2008 tax return, it’s still not to late to reap the benefits of the tax credit.  Just file an amended 2008 tax return (1040X).

 

Once the credit is claimed on the tax return it will reduce the buyer’s income tax liability.  Depending upon a qualified buyer’s particular circumstances, none, a portion or possibly all of the tax credit will be refunded as a check to the buyer.  As an example, if your tax credit amount is $8000, and your federal income tax liability is $2000, you will receive a refund check in the amount of $6000.  Conversely, if your tax liability is $10,000, you will not receive a refund of any portion of the tax credit but you will only have to pay $2000. 

 

The best thing about the tax credit is that it never has to be repaid as long as the homeowner follows the three year rule (does not sell and continues to use the home as a principal residence).  This is great news for many first-time homebuyers who can use the money from the tax credit to spruce up that new home they just bought!