Despite the economic turmoil the recession has caused our personal finances, Congress recently passed a special tax credit for first-time homebuyers. In short, the credit provides a maximum $7,500 dollar-for-dollar reduction in income taxes if a home is purchased by a qualified taxpayer between April 8, 2008 and June 30, 2009.
Details you need to know
· A first-time homebuyer is defined as one who did not own a home in the three years before the new home was purchased.
· The credit is a dollar-for-dollar reduction in income taxes and is refundable. This means that if the credit reduces your tax to zero, the remaining credit is refunded to the taxpayer.
· The credit is equal to 10% of the purchase price of the home and is capped at $7,500 ($3,750 if married-filing-separately).
· The home must be the main home of the taxpayer. Vacation homes and income properties are not eligible.
· The credit is phased-out (partially reduced) when your modified adjusted gross income is between $150,000 and $170,000 (married filing jointly) and $75,000 to $95,000 (all others). The credit is completely lost when income exceeds these thresholds.
· If you otherwise qualify for the tax credit and purchase your home between January 1, 2009 and June 30, 2009 you may claim the credit either on your 2009 tax return or your 2008 tax return (either amended or the original return).
· You cannot take the credit if you are a non-resident alien, purchased the home from a close relative, sell your home before the end of the year or stop using the home as your main home.
· MOST IMPORTANTLY: The credit must be repaid to the government at a rate of $500 per year (or 1/15th of the credit allowed) for the next 15 years beginning with the 2010 tax year. If you stop using the home as your main home (such as converting it to a vacation home or income property) or if you sell your home then all remaining annual installments must be paid back in the year the home was sold. Congress has generously (sarcasm added by Dave) written into the tax law that if you die the remaining installments are not due. However, if you are married, the surviving spouse does have to pay back ½ of the required installments on their tax return.
As always, if you have any questions about the new Federal First Time Homeowner credit please feel free to call or email me.
