First-Time Home Buyer Tax Credit

First-Time Home Buyer Tax Credit

In the last few months, I had many people ask different questions about the "first time home buyer tax credit" and how it works, so I decided write about it hoping that others out there wondering about the same thing will benefit from it.

What is the first time home buyer tax credit about?

Hoping to decrease the over-supply of homes for sale and improve the economy, Congress enacted the tax credit designed to be an incentive for first-time home buyers purchasing a home. The credit was created July 2008 and applied to all qualified purchases made on or after April 9, 2008 and before January 1, 2009. The amount was 10 % of cost of the home but not to exciding $7,500. The credit was structured as an interest free loan to be repaid (6.67% or $500) each year in a period of 15 years, starting in 2010.

The tax credit was revised for the year 2009. The amount of the credit was increased to $8, 000 and the repayment featured was eliminated on purchases on or after January 1, 2009 and before December 1, 2009. You have to pay this credit back only if the home is sold, rented or for some other reason stop to be your main home within 36-months period of the purchase. These are some of the changes for the 2009 tax credit, most everything else will remain practically the same.

Who is eligible?

Only first time home buyers purchasing a primary residence in the U.S. (including single family homes, condos, co-ops or townhouses) with individual adjusted gross income of no more than $75,000 or $150,000 for couples. A single person making from $75,000 - $95,000 or a couple making from $150,000 - $170,000 will still eligible for some deductions but if they make more than that the credit will disappear. A person is consider a first time home-buyer only if he/she has not had any ownership interest in a home in the previous three years.

How does it work?

This is a tax credit and can only be claim by eligible first-time home buyers on their IRS Form 1040 tax return. This is what is called "refundable" tax credit, which means the IRS will send you a check $8000 if you don't have tax liabilities.

For answers to the some of the most frequently asked questions about this credit visit the official federal housing tax credit website.