10 Things to know about the new $8,000 real estate tax credit

The following are some details about the $8,000 first time home buyers credit included in the Stimulus bill signed into law by President Obama on Tuesday:

1) The credit is 10% of the homes purchase price, limited to $8,000, and does not have to be paid back (unless the property is sold within 3 years - See #7 below).

2) The credit is limited to first time home buyers and principal residences

3) The definition of first time home buyer is someone who did not own a principal residence within 3 years of the date of closing of the new purchase.

4) The credit is only for a limited time. The closing date of the sale must be between January 1, 2009 and December 1, 2009

5) To receive the full credit, single taxpayers must have earned (modified adjusted goss income)  less than $75,000 and married taxpayers must have earned less than $150,000. The tax credit is phased out proportionally for taxpayers who exceed these income limits. The credit is zero at an income level of $95,000 for single taxpagyers, and $170,000 for married taxpayers.To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

6)  The credit is a "refundable credit", which means the credit is deducted from the taxes owed, and if the net result is less than zero, the amount is refunded to the taxpayer. Therefor, even if you pay no taxes, you will receive the credit which will be paid to you.

7) The buyer must hold the property for at least 3 years or the tax credit wil have to be returned (exceptions are for sale due to death or divorce ).

8) Those people who took advantage of the $7,500 first time home buyers credit last year, must still pay the credit back over a 15 year period.

9) Two unmarried individuals buying a principal residence may allocate the credit "in any reasonable manner"

10) Tax payers who purchase a home in 2009 can claim the tax credit on their 2008 tax return (the purchase is treated as if purchased on 12/31/08). If the tax return has already been filed, the tax payer can file an amended return for 2008.

NOTE: The information contained above is for educational purposes only and is not intended for any particular person or circumstance. A competent tax professional should always be consulted before utilizing any of the information contained above. For more information about Income Tax Issues  affecting real estate, visit my website at http://www.maureenmegowan.com