Tax Credit

The American Recovery and Reinvestment Act of 2009 authorized the IRS to allow some home purchasers to claim a tax credit against their 2008 or 2009 tax returns. Home buyers who have not owned a principal residence during the three years prior to the purchase are eligible for a tax credit of 10 percent of the purchase price of homes bought before December 1, 2009, up to a maximum of $8,000.

Although it is often referred to as the first time home buyer tax credit, individuals who have been renting for the last three years may still be eligible even though this will not be their first home purchase.

There are income restrictions to qualify for the tax credit. Single individuals can earn up to $75,000 and married couples can have income up to $150,000 and still qualify for the full tax credit. A single taxpayer with income over $95,000 or married taxpayers with income over $170,000 are not eligible for the tax credit.

Unlike the tax credit which was passed by Congress in July 2008 which was essentially an interest free loan that had to be repaid, the first time home buyer tax credit does not need to be repaid if the home is used as the buyers principal residence for at least three years.

Some individuals won’t have to wait until they file their 2009 tax return in order to see the money from the tax credit. Home buyers who believe they qualify may reduce their income tax witholding in 2009 or file an amended 2008 tax return claiming the credit for the 2009 purchase of their house in their 2008 income tax return. HUD will also allow FHA buyers to apply the anticipated tax credit immediately toward certain aspects of the purchase of their new home such as certain down payment and closing costs by taking out a short term loan.

Additional information can be found on the IRS website here. As always, please consult with your tax advisor to ensure that you qualify for the tax credit before buying a home. If I can provide any additional details about the $8,000 home buyer tax credit in 2009, please don’t hesitate to contact me.