Considering a first home purchase this year? Your budget might be impacted by the first-time homebuyer tax credit.
Normally, a how-to session on tax issues might have you tuning out in the classroom. But if you're planning to purchase your first home in 2009, there's one tax subject you need to learn, and that's how to take advantage of the first-time homebuyer tax credit.
Eight thousand reasons to buy a home in 2009
The sweeping $787 billion stimulus program passed by Congress this year incorporated, among other things, notable changes to the first-time homebuyer tax credit. Originally established last year, it was formerly just a tax-funded loan-it had to be repaid, without interest, in 15 years.
The 2009 version of the tax credit has shed this repayment requirement, and functions more like a conventional tax perk. If this sounds good to you, here are some particulars to prepare you for taking advantage of the program:
- Amount. The tax credit is worth 10 percent of the home purchase price, up to a maximum of $8,000.
- Timing. To qualify, you have to complete your home purchase by December 1, 2009. You can claim the credit on your 2009 tax return, or you can amend your 2008 return and get your money sooner. You cannot amend your 2008 return for an expected home purchase; the deal has to be done before you appeal to the IRS.
- Income. The credit begins to phase out at a modified adjusted gross income (MAGI) of $75,000 for single filers, and $150,000 for joint filers. It disappears completely at MAGI levels of $95,000 for single filers and $170,000 for joint filers.
- Refunds. The first-time homebuyer tax credit is fully refundable; if the credit exceeds your tax liability, you will get a check for the difference.
- Definitions. In this case, "first-time homebuyer" means that you haven't owned a home for at least three years. Also, the home you purchase this year must be your primary residence; you cannot claim the credit on a vacation or investment home purchase.
- Special circumstances. You can even take the credit if you're building your first home. The only difference would be that the deadline of December 1, 2009 applies to the date you move in, rather than the date of closing.
- Repayment. Repayment is not required, unless you move out of the residence within 36 months. You don't have to sell the property to trigger the repayment requirement either; you just have to cease using it as your primary residence. If this happens, you have to repay the credit in full when you file your tax return for the year during which you moved out of the home.
If you can follow these rules, you're on your way to realizing a sizeable offset to your 2008 or 2009 tax bill. That will earn you an A-plus in this chapter of tax planning.