The American Recovery and Reinvestment Act of 2009 was signed by the President on February 17, 2009. It contains a first time home buyer tax credit that is somewhat different from last year. Here is some basic information about the credit.
What is a tax credit?
A tax credit differs from a tax deduction in that the amount of the credit is deducted from the amount of tax you owe. A deduction reduces that amount of income which is subject to tax. In the case of this first time home buyer tax credit, if the amount of the credit is greater than the amount you owe, then you will be sent a refund check for the remaining amount of the credit.
Who is a first time home buyer?
Someone who has not owned a principle residence, a home they have lived in, for at least three years previous to the purchase of a home this year.
What type of home can I buy?
Single family homes, town homes, and condominiums all qualify.
What is the amount of the credit?
The credit amount is 10% of the cost of the home up to a maximum of $8000. Income limits do apply. The credit phases out for individuals with an adjusted gross income over $75,000 or a couple with an adjusted gross income over $150,000.
When do I have to purchase to get the credit?
You must purchase a home between January 1, 2009 and December 1, 2009.
Does the credit have to be paid back?
This credit does not have to be paid back for people who purchase between January 1, 2009 and December 1, 2009 unless the home is sold within three years and then the entire credit us due upon the sale of the property.
People who purchased a home between April 9, 2008 and December 31, 2008 will have to pay back their credit over a 15 year period. If they sell the home within 15 years, then the remaining balance of the credit will be due upon the sale of the property. (Rules for last year’s credit were different and the maximum amount was $7500.)
When do I get the money?
This is a tax credit. You will not get the money when you buy the house. Instead the credit will be applied to the taxes you owe for 2009. This will occur when you file your 2009 taxes in 2010.
Consult an Accountant
Tax laws are complicated and each year there are new changes; therefore, we always recommend that you consult your accountant or the IRS regarding any tax questions that you might have including whether or not you qualify for this tax credit.
Source: National Association of REALTORS®.