Following is some information on the First Time Home Buyer Tax Credit that we have received several questions about.  I hope you will find it helpful for yourself or someone you know who might be interested.

The American Recovery and Reinvestment Act of 2009 authorizes a tax credit of up to $8,000.00 for qualified first- time home buyers purchasing a principal residence on or after 1-1-2009 and before 12-1-2009.
The following questions and answers provide some basic information about the tax credit.  Please contact me in the event you have further questions.

1.  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 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.

2.  How is the amount of the tax credit determined?  The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

3.  Who is eligible to claim the tax credit?  First-time buyers purchasing any kind of home are eligible for the tax credit.  To qualify for the tax credit, the purchase must occur after 1-1-2009 and before 12-1-2009.  For the purposes of the tax credit, the purchase date is the date the closing occurs and the title of the property transfers to the home owner.

4.  Are there any income limits for claiming the tax credit?  Yes, the income limit for single taxpayers is $75,000; the limit for married taxpayers filing a joint return is $150,000.  The tax credit is reduced for buyers with a                             modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return.  The phaseout for the tax credit program is equal to $20,000.  That is,  the tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGI’s between these amounts.

5.  If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?  Possibly.  It depends on your income.  Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

6. Is a tax credit the same as a tax deduction?   No.  A tax credit is a dollar for dollar reduction in what the taxpayer owes.  That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000  tax credit would owe nothing to the IRS.

7.  I read that the tax credit is “refundable”, What does that mean?  The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset.  Typically this involves the government sending the taxpayer a check for a portion or even all of the the amount of the refundable tax credit.

8.  Instead of buying a home from a new home builder, I hired a contractor to construct a home on a lot that I already own.  Do I still qualify for the tax credit?  Yes.  For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the  owner first occupies the house.  In this situation, the date of first occupancy must be on or after 1-1-2009 and before 12-1-2009

9.  What types of homes will qualify for the tax credit?  Any home that will be used as a principal residence will qualify for the credit.  This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes, also known as mobile homes and houseboats.  The definition of principal residence is identical to the one used to determine whether you may qualify $250,000-$500,000 capital gain tax exclusion for principal residence.

10.  For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?  Yes.  If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.