As part of the American Recovery and Reinvestment Act of 2009, a.k.a. the Stimulus Bill, first time home owners are now eligible for a tax credit of $8,000.
At a glace, in order to qualify for the FULL tax credit, you:
- Must be a first time homebuyer
- Must be purchasing a principal residence
- Must purchase between January 1, 2009 and December 1, 2009
- Must make less then $150,00 (couple MAGI) or $75,000 (single MAGI)
The definition of "first-time homebuyer" in this new bill is very generous. In order to qualify as a first-time home buyer, you simply cannot have owned a home in the previous three years. The property that you purchase must be your principal residence and the purchase must be made between January 1st, 2009 and December 1st, 2009
This tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives a $8,000 tax credit would owe nothing to the IRS. Use Form 5405.
The credit is equal to 10 percent of the purchase price, up to $8,000. Single taxpayers with modified adjusted gross income up to $75,000 and couples with MAGI up to $150,000 will qualify for full credit. Singles with MAGI up to $95,000 and couples with MAGI up to $170,000 will get a reduced amount. Those with higher incomes don’t qualify. If the amount of tax a homebuyer owes is less than the amount of the credit, they get to keep the difference in the form of an IRS refund.
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications or forms are required.
Homebuyers who sell their home within 3 years, the entire amount of credit is recaptured on the sale (for homes purchased in 2009).
This tax credit is what’s called “refundable” credit. Thus, if the eligible purchaser’s total tax liability was $6000, the IRS would send the purchaser a check for $2000. The refundable amount is the difference between $8000 credit amount and the amount of tax liability. ($8000 - $6000 = $2000) Most taxpayers determine their tax liability by referring to tables that the IRS prepares each year.
Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.
Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.
Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances. If you would like to contact my CPA for free, let me know, no obligation.
Thinking about buying your first home in Ann Arbor? This is the perfect opportunity to get your foot in the door.
Please contact Kathy Toth and Team for help or feel free to use our free online Ann Arbor real estate search!
Kathy Toth & Team
www.KathyToth.com
Keller Williams Realty
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