The Skinny on the $8000 First-Time Home Buyer Tax Credit

You may or may not have heard…there is an $8000 first-time home buyer tax credit some of you may qualify for and may want to take advantage of. In case you missed it, here’s the skinny on it…

Who – Taxpayers who have not owned another principal residence at any time during the three years prior to the date of purchase.

What – The credit is 10 percent of the purchase price of the home, with a maximum available credit of $8,000 for either a single taxpayer or a married couple filing a joint return, but only half of that amount for married persons filing separate returns. And yes, the new version of the first time home buyer credit is actually a “credit”, not a loan.

When – Any home purchased as the taxpayer’s principal residence and located in the United States qualifies. You must buy the home before Dec. 1, 2009, to qualify for the credit. For a home that you construct, the purchase date is considered to be the first date you occupy the home.

Where – The home must be located within the 50 U.S. states or Washington, DC.

How – The credit is claimed on new IRS Form 5405, First-Time Homebuyer Credit, and filed with your 2009 federal income tax return.

There’s definitely some fine print you should read through, but here are two of the more important “fine print” items you should know…

1. You have to repay the credit if the home ceases to be your principal residence within the 36-month period beginning on the purchase date.
2. The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for home buyers filing jointly. The amount of the tax credit decreases as his/her income approaches the maximum limit. Home buyers earning more than the maximum qualifying income—over $95,000 for singles and over $170,000 for couples are not eligible for the credit.

Tip: Here’s how to use the tax credit to your advantage today rather than waiting for it until next year…

As a first-time home buyer, you can borrow the dollar amount of the expected tax credit from a relative today and pay it back when the tax credit is received in 2010. You could use towards the down payment and/or closing costs. FHA and VA loan programs will allow it.

Disclaimer: I am not a tax accountant, lender, lawyer nor work for the IRS. This is not intended to be advice. Speak with a professional tax accountant, loan officer, lawyer or the IRS directly for guidance.

$8K First-Time Home Buyer Tax Credit Now Available, Explained in Detail

Though I'm sure you've already heard the news about the new $8,000 first-time home buyer tax credit, I wanted to share three excellent articles and resources that do a great job explaining in layman's terms.

The first article and resource is from U.S. News & World Report. Here's an excerpt:

1. Eight grand, new buyers: The tax credit included in the economic stimulus legislation is much narrower than the $15,000 proposal. 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. 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.

The second is from Jay Thompson (aka The Phoenix Real Estate Guy). Here's an excerpt:

Will this revised tax credit stimulate a housing market recovery? Maybe. Maybe not. Personally, I think the Senate’s version which was a $15,000 tax credit (that could be evenly split over two years), wasn’t subject to income restrictions and most importantly was for ALL, not just first-time, buyers would have been more successful. But that’s water under the bridge. It’s gone. What we have is what we have. This is a nice incentive for first-time buyers, and the fact that it is both refundable and does not have to be repaid is a significant improvement over the existing “credit” (which was really a zero interest loan).

The third is from Ben Martin over at VAR buzz. Here's an excerpt:

If you’re thinking…

“Oh great! Just as I had figured out the 2008 first time home buyer’s credit, they go and pass a new one with different rules!”

Fear not!

Here are two handy-dandy resources from NAR that will help you make sense of it for yourself and your clients.

I'll end this post by quoting Jay Thompson… "I am not a tax professional, nor do I play one on TV or the Internet. You should seek advice from a CPA or professional tax preparer. If the IRS comes after you with guns blazing for anything you read in this post or anything you think you read in this post, it’s not my fault. Seek professional help!"

Other related articles:

First Time's a Charm – The Wall Street Journal/Market Watch

IRS First Time Home Buyer Credit FAQ’s, Is It a Gimmick?

Curious as to how the IRS "first time home buyer credit" works, whether you qualify and how to take advantage of it? There's a good FAQ section over at FederalHousingTaxCredit.com that goes over the "first time home buyer credit" in detail.

Here's an excerpt:

1. Who is eligible to claim the $7,500 tax credit?

First time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after April 9, 2008 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs.

2. What is the definition of a first-time home buyer?

The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

3. How do I claim the tax credit? Do I need to complete a form or application?

Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.

4. What types of homes will qualify for the tax credit?

Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.

For the full set of questions and answers regarding the IRS "first time home buyer credit", check out the FAQ section over at FederalHousingTaxCredit.com.

***NOTE: Before you get too excited about the tax credit, make sure you go through all the FAQ's and then go over to CNNMoney.com to read this post about how it may not be all that it's cracked up to be.

The Skinny On Congress’s Housing Bill and First Time Home Buyer Credit

Many of you have heard about Congress’s massive federal housing bill and mortgage bailout sections that include two tax provisions/tax credits for "first time" home buyers. The most impactful part of the bill are the two provisions and tax credits for "first time" home buyers. So here’s the "skinny" on the two provisions:

• "First-time" home buyers would get a tax credit of 10 percent of the purchase price of the home up to a maximum of $8,000
• The tax credit would reduce the buyers’ federal tax bills, dollar for dollar, for the year of the purchase
• A second form of the new tax benefit would be available to millions of home owners who don’t itemize on their federal tax filings. Those home owners will receive a $500 to $1,000 annual deduction for the real property taxes they pay, but currently can’t write off.
• The $1,000 deduction would be for married homeowners filing jointly. It would ne $500 maximum for single filers.

But there is some fine print…

• The $8,000 maximum on the new tax credit is limited to married home buyers who file their taxes together. Singles get maxed out at $4,000
• The credit isn’t free. It’s like like a loan. You’ve got to repay it to the IRS over a fifteen year period that starts one year after you close on the purchase. Each year of the fifteen, you’re required to repay six and two-thirds percent of the original tax credit amount
• If you sell the house within the first year, you don’t qualify for any credit whatsoever. If you sell later, you’re liable for taxes on any remaining amounts of the credit you haven’t already repaid, but not beyond your capital gain, if any, on the sale.

There’s more fine print, but it’s good news:

• The definition of "first time" home buyer isn’t necessarily what you think. You can still qualify for the credit even if you’ve bought and owned homes before. You just can’t have owned a house any time in the three years before your latest purchase.

In a nutshell, it isn’t free money. It’s basically a deferred tax credit that must be paid off in full at some point in time – 15 years at the maximimum. It’s definitely good in many ways, but it’s not a true "tax credit" as you may think.