How the new $8000 first time homebuyer tax credit will work
UPDATE (NOV. 5, 2009): Read this for information about the newly extended and expanded $8,000 home buyer tax credit which is is open to more than first time homebuyers and extended to May 1, 2010.
Now that it's official and Obama has signed the economic stimulus bill, there is some clarification on how the $8000 first time homebuyer tax credit will work. Here are the details:
- The tax credit is worth $8,000 or 10% of the home's value (whichever is less). FYI: A tax credit is a dollar for dollar reduction in the amount of taxes owed (much better than a tax deduction which only reduces your taxable income amount that your tax bill is based on).
- The tax credit is non-repayable AND refundable. That means you don't ever have to pay the $8,000 back AND it also means that if you owe less than $8,000 in total taxes, you will receive a refund from the government of any extra credit. If you currently are expecting a refund anyway, you will get the $8,000 additional on top of what you would expect to get.
- To qualify, you have to buy a home in 2009 - you must close on a home between Jan 1, 2009 and November 30, 2009 to be precise. [NOTE: Last year's $7500 homebuyer tax credit remains repayable for those who purchased in 2008. For more info on the 2008 homebuyer tax credit read here and here plus see the excellent graph from NAR below for a thorough comparison].
- You are eligible for the tax credit if you are a first time homebuyer (meaning you haven't owned a home within three years).
- You must also meet income guidelines - the credit is phased out if you make more than $75,000 as an individual or $150,000 if you are married. Phased out means that if you make more than those amounts (but less than $95,000 single and $170,000 married), you may be eligible for a partial credit.
- The tax credit can be claimed on either your 2008 tax return or your 2009 tax return. So if you recently purchased, you can file it under your 2008 tax return to get your credit sooner. You can also amend your 2008 return if you already filed. Check with your accountant, but I believe all that is required is Form f5405 from the IRS.
- You only need to file it on your tax return to claim the credit. It's simple, no other paperwork needs to be filed (besides Form f5405). But you do not get the money before closing or at closing, only when you get your tax refund.
From the National Association of Realtors, here is a direct comparison chart highlighting the changes in the homebuyer tax credit from last year to this year (the major changes are highlighted in bold italics):
Hope that helps clarify things......
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