Do you qualify for the First-Time Homebuyer Credit?
The First-Time Homebuyer Credit, originally passed in 2008 (discussed below) has been modified for 2009, and now provides up to an $8,000 credit for first-time homebuyers. The purchaser, however, must qualify as a first-time homebuyer, which for purposes of this credit means someone who has not owned a primary residence in the past three years. If the taxpayer is married, this requirement also applies to the taxpayer's spouse. The home purchase must close before December 1, 2009, to qualify, and the credit may not be claimed on the purchaser's tax return until after the taxpayer closes and has purchased the home.
A first-time homebuyer credit is available to individuals in all areas of the United States who purchase a home on or after April 9, 2008, and before July 1, 2009.The buyer must not have had an ownership interest in a principal residence during the 3-year period prior to the purchase of the home.This means that if you are a renter who happens to own a vacation home, you are not disqualified from receiving the credit.
The amount of the credit is the lesser of $7,500 ($3,750 for MFS) or 10% of the purchase price of the principal residence.The credit is taken in the year the taxpayer purchases the residence.
The credit is a “refundable tax credit” which means that you get the credit regardless of how much income tax you have paid in through withholdings or estimated tax payments.This also means that, if through this tax credit, you become overpaid on your tax return, the net overpayment will be paid to you as a refund.
The tax credit is, however, really nothing more than an interest free loan from the government.The tax credit must be repaid, interest free, ratably over a period of 15 years starting with the second year after he credit is claimed.
The date of purchase is defined to be the date title closes, or, if the taxpayer constructs the residence, the date the taxpayer first occupies the residence.If a taxpayer files their 2008 tax return and then subsequently purchases a residence in the eligible 2009 time period, then the taxpayer can amend their 2008 tax return and claim the credit on that amended 2008 tax return.
The credit is phased out for single individuals with modified AGI (adjusted gross income) between $78,000 and $95,000 and for married filing joint taxpayers with modified AGI between $150,000 and $170,000.
If the taxpayer disposes (sells) of the property, or, if the property ceases to be the principal residence, then the remaining un-repaid credit must be recaptured and fully repaid in the year of the disposition or conversion from being the principal residence.The recapture amount will be calculated to not exceed the gain from the sale as along as the residence is sold to an unrelated person.“Gain” is this circumstance is determined by reducing the basis by the amount of the credit not already recaptured.
In the event the taxpayer dies, then no amount is recaptured after the death of the taxpayer.
In the event of divorce, the spouse who receives the home will be the responsible party for future recapture.
Property acquired from a related person or acquired through inheritance does not qualify for the credit.