Frequently Asked Questions About the Home Buyer Tax Credit

$8,000 First-Time buyer Tax Credit. 11 Key Facts.

  1. On July 30, 2008, housing bill H.R. 3221 (Housing and Economic Recovery Act) was signed into law providing first- time homebuyers with a temporary tax credit.

  2. The government's definition of a first-time buyer is anyone who hasn't owned a home in the last three years.
  3. For 2009, Congress, under The American Recovery and Reinvestment Act of 2009, has increased the credit to $8,000 and made several additional improvements. This revised $8,000 tax credit applies to purchases on or after January 1, 2009 and before December 1,2009. The previous credit was for $7,500 for the purchase of a principal residence on or after April 9, 2008 and before July 1, 2009 and was subject to repayment over 15 years. Read the announcement from the Treasury.
  4. The tax credit will shave $8,000 off a first-time buyer's federal tax bill due April 15.
  5. Buyers who don't owe tax, will get the money as a refund.
  6. Any house is eligible as long as it’s a primary residence and is in the United States.
  7. For new construction, the buyer qualifies for the tax credit when the purchase date is the date the buyer first occupies the home.
  8. Individuals whose income exceeds the $75,000 limit but isn’t more than $95,000 can still take the credit but on a reduced basis. The same thing applies to households earning up to $170,000. $8,000 is the max, regardless of single or married status.
  9. The actual credit amount is set as a percentage of the home purchase amount. That percentage amount is 10 percent, so your customers can get 10 percent of the home price credited against their tax liability, up to a maximum $8,000.
  10. It should be noted that this is a tax credit and not a tax deduction.
  11. If the home is sold within 3 years of the date of purchase, you are required to pay back the full amount of any credit including any refund you received from it. Note that this same 3 year recapture rule applies, as well, to the $7,500 credit available for 2008. This provision is designed as an anti-flipping rule.

The $8,000 Tax Credit is not available to the following:

  1. Non-resident aliens
  2. Adjusted Gross income exceeds 95,000 (individual) or $170,000 (joint)
  3. If the property is sold before the end of the tax year
  4. If a property no longer qualifies as a principal residence before the end of the tax year
  5. If the homebuyer purchases the property from a relative

Am I Eligible?

First-time homebuyers who purchase a principal residence on or after january 1 2009 and before December 1, 2009 are eligible. A person is considered a first-time buyer if he/she has not had any ownership interest in a home in the three years previous to the day of the 2009 purchase.

How Does it Work?

Like all tax credits, it will directly reduce the total amount of taxes you owe. When you file your taxes, for the year you purchased your home (2008 or 2009), you will be able to subtract the amount of the credit from your Federal income tax liability, increasing the size of your refund or reducing the amount you owe. For example, you file your ‘normal’ tax return and find that you owe $2,000 in taxes. With this credit, your tax liability could be lowered by $8,000—which means, you instead get a $6,000 tax REFUND check fromthe IRS. IRS Forms.

What about Repayment?

The new $8,000 tax credit doesn't require repayment.

However, the previous $7500 tax credit has a payback provision that makes it similar to an interest free loan. Two years after the credit is claimed, you must begin repayment so that you will have paid the credit back in full over the course of 15 years. For those qualifying for the full credit, the payback amount is $500 per year. For those getting less than the full credit, you pay equally over the 15 years (which is a rate of 6.67% per year). If a qualifying home is resold before the credit is repaid, the seller will have to immediately pay the outstanding balance of the credit. If the home is sold at a loss, then you owe nothing back. What’s valuable about a credit you have to repay? Money today is worth more than an equal amount of money in future, which economists call the time-value of money. First, money loses its purchasing power over time due to inflation. Second, you can use the money today to earn interest and repay the principal later—all the while keeping the interest for yourself. For this reason, multimillion-dollar lottery winners prefer taking a lower lump-sum amount than the multimillion dollar amount spread out over many years. (Source: National Association of Realtors).

For more specific questions about the tax implications of the credit, please consult a tax professional.