First Time Home Buyer Tax Credit
What does it all mean?
Update: The amendment allowing for the extension to May 1, 2010 and expansion to include other buyers did eventually pass and was signed into law by the President. You can read up on the new rules and changes in “First Time Home Buyer Tax Credit – The New Extension And Expansion.”
It seems there are some questions lingering out there as to what the new $8000 First Time Home Buyer Tax Credit is all about. In an attempt to make it a little more clear, here’s the breakdown.
What is a first time home buyer?
Most people think that you must have never owned a home to qualify as a first time home buyer. Makes sense, since the words “first time” appear in the phrase. However, a first time home buyer is defined as someone who has not owned a home in the last three years. Sold your house in 2005 and lived in an apartment since then? You’re considered a first time home buyer. Never owned a house at all? You’re a first time home buyer. As long as there are three years in there of not owning a house (from the day of your new purchase back three years), you’re considered “first time.”
What is a tax credit?
A tax credit is given to you after all your deductions are taken and the amount of liability (what you owe) is calculated. Let’s say you owe the Internal Revenue Service (IRS) $10,000 this year. With an $8,000 tax credit, you would now owe them $2,000 ($10K-$8K=$2K). What’s great about this tax credit is that its refundable. If you owe the IRS $0, then you would receive a refund check of $8,000 after filing your taxes. If the IRS owed you $2,000 on your tax return and you were eligible for the $8,000 first time home buyer tax credit, you would receive a refund check in the amount of $10,000 ($2K+$8K=$10K).
Who is eligible?
As stated above, you must be a first time home buyer. You can not make in excess of $75,000 a year if you are single or $150,000 if married and filing jointly. You must occupy the home as a primary residence (no vacation or investor properties are eligible) and you must occupy the home for a minimum of three years (see below for details of what happens if you sell before your three years are up). Homes purchased January 1 through December 1, 2009 are eligible (if you bought your home in 2008 you may still be eligible for the previous $7,500 tax credit).
How much can I receive?
The tax credit is equal to 10% of the purchase price up to $8,000. If you buy a house for under $80,000, the amount of your credit would be less than $8,000. If your purchase price is above $80,000 you would receive the maximum of the credit, $8,000.
Do I have to pay it back?
No. As long as you stay in the home for three years. Unlike the previous $7,500 first time home buyer tax credit, this new credit is not meant to be paid back. Its quite a good incentive to buy a home, as the IRS is not usually in the business of handing out money like this.
What happens if I don’t stay in the home for three years?
If you decide to sell before your three years are up, the government will ask you to pay back the entire amount upon the sale of your home. For instance, if you sell the home for $200,000, owe the bank $180,000 (your mortgage), and sell in two years after receiving the tax credit (let’s say you received the full amount – $8,000); the government would receive $8,000 out of the $20,000 you have left after paying the bank (this is simplified as there would be closing costs, commissions, and miscellaneous expenses in the sale of your home). So out of your $20,000 profit, you would be left with $12,000 after you sold your home.
When is my date of purchase?
The date of purchase is when the ownership of the home transfers from the seller to you, the buyer. Some people wrongly assume that when their offer is accepted, this is the date of purchase. In Texas, the ownership transfers typically upon “closing and funding.” Closing is the process the title company goes through when all the paperwork is signed and filed by both parties. Funding is when all the money is released to the appropriate parties and can actually occur after closing (which is why we use “closing and funding” together as a term so often). It is important to note, that the day you sit at the closing table and sign all the documents might not be the same day as you take ownership of the home (and get your new keys).
I bought a home in January 2009 and already filed my taxes, what can I do?
If you’ve already filed your taxes (some people like to file early) and bought a home between January 1, 2009 and today; you may be able to file an amended return. Check with your tax professional for advice on how to proceed.
Final thoughts?
As with anything involving taxes and finance, I recommend you speak with a qualified tax professional when considering your goals and the outcome of a move like this. This can be a great way to purchase a new home and save some extra money for a rainy day, make repairs, or have a bit of extra cash to do some things you’ve been waiting for the money to do. With current inventory levels running on the higher side, there is a wide selection of homes to choose from and sellers are being competitive on pricing in order to make their home stand out. If you’ve been thinking about buying, this could be the opportunity for you – a tax credit, low interest rates, and a great selection of homes all add up to give you an advantage. If you have more questions or would like to begin your search, feel free to contact me and I would be glad to assist you.
photo courtesty of RogueSun Media
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Comments
If you purchased a home via auction in 20008, then rehab it, including foundation but do not move in. then you Occupy it in 3/09 would you qualify for the $8000 stimulus.
all other qualifications for first time homebuyer are met.
thank you.
in addition, there was Interim bank financing originally & closed with permanent first time homebuyer mortgage in 3/09.
Julie,
You bring up an interesting question. I’m going to check with someone I know on this, because I’m not 100% sure I have the answer.
However, one thing I can note, you mentioned you bought the house in 2008. Depending on how the IRS looks at occupancy and purchase (the main bulk of your question), if it were indeed marked as a purchase in 2008, you would only be able to qualify for the old $7500 tax credit, which is repayable, unlike the current $8000 tax credit.
I’ll let you know what I find out.
Thanks for stopping by.
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