The 2009 First Time Homebuyer Tax Credit

In 2008, Congress created a $7,500.00 first time homebuyers tax credit. It went into effect on April 8, 2008 and was set to expire on July 1, 2009. The big problem with this credit was that it needed to be re-paid over 15 years. People viewed this as a debt and not a real benefit.

In 2008, the real estate community began advocating removing the repayment feature of this credit. They also were pressing to extend the credit through December 2009 and make the credit available to every homebuyer rather than just first time homebuyers.

The new 2009 tax credit plan consists of the removal of the repayment, as well as an extension of the credit to on or before November 30, 2009. This credit can now be claimed by those who closed on homes on or after January 1, 2009. Keep in mind that the credit is repayable on purchases from 2008. Additionally, the credit has increased to $8,000.00; however, it is still only valid for first time homebuyers.

Some of the details pertaining to this credit involve an $8,000.00 refundable tax credit or up to 10% of the purchase price of the home. For example, if the property costs $75,000.00, then the buyer’s credit claim can only be $7,500.00. If the purchase price is $85,000.00, than the buyers can claim the entire $8,000.00. Refundable means that if your total tax liability in the given year is less than $8,000.00, the IRS will send a refund to for the balance.

Most taxpayers do not have a tax liability that exceeds $8,000.00. For example, according to the 2008 IRS tax tables, a single filer would need $46,000.00 in taxable income to have an $8,000.00 tax liability. A couple would need $58,000.00 in taxable income to have an $8,000.00 tax liability. Those with less tax liability will in most cases get a refund meaning they get the full value of the credit.

There are certain individuals who are ineligible to receive the credit. If you fall into any of the following criteria, you may not be able to receive the credit.
*Your income exceeds the phase-out range. This means joint filers with a Modified Adjusted *Gross Income (MAGI) of $170,000.00 and above and other taxpayers with a MAGI of *$95,000.00 and above
*You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
*You stop using your home as your main home.
*You sell your home before the end of three years.
*You are a non-resident alien.

First time homebuyers are defined as someone who owned another main home at any time during three years prior to the date of purchase. For example, if you bought a home on January 15, 2009, you cannot take the credit for that home if you owned, or had ownership interest in another home at any time from January 15, 2006 through January 15, 2009. So if the last time you owned a home was 2005, you are eligible for the credit even though it is really not your first home. For married joint filers, both must meet the 1st time homebuyer test to take the credit on a joint return.

In conclusion. This information is accurate based on information available as of February 21st, 2009. For more detailed information regarding this stimulus package, please visit http://www.realtor.org/government_affairs/gapublic/american_recovery_reinvestment_act_home?lid=ronav0019 or consult your tax advisor with any questions regarding the use of this provision.