I have had many of questions on how the so-called $8000 home buyer tax credit works. This article is to give you an overview and understanding of this government gift.
First, in order to qualify you MUST be a first time home buyer. Who is a first time how buyer? Well, the government defines a “first time home buyer” as a person who has not owned a principle residence in the past three years. If you are married, both parties must be first time home buyers. Now, if you bought a home 3 years ago and have had it rented since you purchased, then this would not count as a principle residence. Also, rental property and vacation homes do not count as principle residences (please check with your accountant for definitions). Mobile homes and condos do count as principle residences. You can also build a house versus buying an already built house and it should qualify.
The other important thing to consider is when you buy the property. You must buy the home after January 1, 2009 and before December 1, 2009 to qualify.
In addition, you must meet certain income limits to qualify. First time home buyers with modified gross annual income of $75,000 for singles and up to $150,000 for married couples to get full benefit of this housing tax credit. The credit is gradually reduced for those with incomes between $75,000 to $95,000 for singles and between $150,000 to $170,000 for married and reduced to zero for modified gross annual incomes over the $95,000 and $170,000 for singles and married, respectively.
The amount of tax credit the home buyer receives is not always $8000. The home buyer gets 10% of the purchase price up to $8000. So, if you purchased a $60,000 home you would only get a $6000. Thus in order to get a full tax credit of $8000 your purchased property must be above $80,000 in value. Another thing to remember that this is a tax credit and not a tax deduction. That is qualified first time home buyers deduct $8000 from their total tax owed to the IRS and NOT the total taxable income. Also, this is a refundable tax credit which means that in case the total taxes you owe to the IRS are less than $8000, you can actually get a refund for the balance amount!
The $8000 home buyer tax credit does not have to be repaid to the IRS unless you do not stay in your home at least 3 years. If you do not stay in the home for the three year period you will have to repay.
Finally, many people have also asked whether you can claim your $8000 tax credit in 2008 tax return or do you have to wait to file 2009 taxes. The law allows any qualified purchases made in 2009 to be treated as if the purchase was made on or before December 31 2008. You can claim the $8000 first time home buyer tax credit in 2008 tax return itself by filing form 5405 according to the latest IRS ruling.
I hope this clarifies any question you may have had concerning this topic.
