First Time Home Buyer Tax Credit – What Does It Mean For You?

There has been some confusion lately with the First Time Home Buyers Tax Credit. This has been caused by the fact that there are two tax credits that has been enacted in less than a year. Here I will give you a quick summary of both.

The Housing and Economic Recovery Act of 2008

· Authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before January 1, 2009. This is in essence an interest-free loan.
· The credit is equal to 10% of the purchase price of the home , up to $7,500.
· Only first time home buyers can qualify for this credit as defined by this act. The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.
· The income limit for single tax payers is $75,000, and the credit dissapears once the modified adjusted gross income reaches $95,000. For married couples the limit is $150,000, and the credit dissapear once the modified adjusted gross income has reached $170,000.
· Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence. This includes single-family detached homes, townhomes, condos, manufactured homes and houseboats, within the United States.
· You receive your credit when you file your tax return.
· Tax credit must be paid back to the government over a period of 15 years. The repayment starts in the second year after the tax year that the home was purchased. So, If you purchased your home in 2008, you will begin repayment when you file your 2010 tax return. Your payments are set at $500 per year for 15 years.
· A word of caution: If you sell the house or no longer the home as your principal residence before the end of the 15 years, you will pay the balance remaining on the credit on the tax return for the year of the change of use or sale.

American Recovery and Reinvestment Act of 2009
· The amount of the credit is $8,000 for primary residences purchased by first time home buyers during the period of January 1, 2009 and November 30, 2009.
· Credit does not have to be repaid, as long as the house is not sold within three years. Unfortunately, those who purchased their homes in 2008 are elegible to $7,500 tax credit and it must be repaid.