First time Home Buyer Tax Credit whats it really all about?

First-Time Home Buyer Credit

There seems to be some confusion in regards to the First-Time Home Buyer Credit as to how much and who does and does not qualify.

This information was taken DIRECTLY from the IRS on form 5405

The First-Time Home Buyer credit is for either a max of $7,500 or $8,000 if you purchased your home AFTER April 8, 2008 and before December 1, 2009 ($8,000.00 is only if you purchase in 2009).

For homes purchased in 2008, the credit operates much like an interest-free loan.  You generally must repay it over a 15-year period.  For homes purchased in 2009, you must repay the credit only if the home ceases to be your main home with the 36-month period beginning on the purchase date.

Who Can Claim the Credit

You purchased your home located in the United States after April 8^th 2008, and before December 1, 2009.

You (and your spouse if married) did not own any other main home during the 3-ye4ar period ending on the date of purchase.

MAIN HOME.  Your main home is the one you lived in most of the time.  It can be a house, houseboat, house trailer, cooperative apartment, condominium, or other type of residence.

Who cannot claim the Credit

You cannot claim the credit if any of the following.

1.        Your modified adjusted gross income is $95,000 or more ($170,00 or more if married filing jointly).

2.       You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any tax year.  This rule does not apply for home purchased in 2009.

3.       Your home financing comes from tax-exempt mortgage revenue bonds.  This rule does not apply for home purchased in 2009

4.       You are a nonresident alien.

5.       Your home is located outside the United States.

6.       You sell the home, or it ceased to be your main home, before the end of 2008.

7.       You acquired your home from buy gift or inheritance.

8.       You acquired your home from a related person.

         a.       Your spouse, ancestors (parents, grandparents, etc.), or lineage decendents (children, grandchildren, etc.)

         b.      A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation.

•c.        A partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.

Repayment of Credit

Repayment of Credit Homes purchased in 2008. You generally must repay the credit over a 15-year period in 15 equal installments. The repayment period begins in 2010 and you must include the first installment as additional tax on your 2010 tax return. If your home ceases to be your main home before the15-year period is up, you must include all remaining annual installments as additional tax on the return for the tax year that happens. This includes situations where you sell the home, you convert it to business or rental property, or the home is destroyed, condemned, or disposed of under threat of condemnation. If you and your spouse claim the credit on a joint return, each spouse is treated as having been allowed half of the credit for purposes of repaying the credit.

Example 1. You claimed a $7,500 credit on your 2008 tax return. You must include $500 ($7,500 4 15) as additional tax on your 2010 tax return and on each tax return for the next 14 years.

 Example 2. You claimed a $7,500 credit on your 2008 tax return. In 2009, you sold the home to your son. You must include $7,500 as additional tax on your 2009 tax return.

Exceptions.  The following are exceptions to the repayment rule.

If you sell the home to someone who is not related to you, the repayment in the year of sale is limited to the amount of gain on the sale. When figuring the gain, reduce the adjusted basis of the home by the amount of the credit you did not repay.

If the home is destroyed, condemned, or disposed of under threat of condemnation, and you acquire a new main home within 2 years of the event, you continue to pay the installments over the remainder of the 15-yearrepayment period.

If, as part of a divorce settlement, the home is transferred to a spouse or former spouse, the spouse who receives the home is responsible for making all subsequent installment payments.

IF YOU BOUGHT A HOME IN 2009 THERE IN NO REPAYMENT OF THE $8,000 TAX CREDIT (You have to keep it as your main residence for 36 months and not sell it before that time, otherwise you do have to repay it.)

This is a great method of helping your buyers have the funds for down payment (partial or full), closing cost or both (depending on your particular market).

Disclaimer:  I am not an accountant; please check with your CPA or the IRS directly.  Nor should anyone consider this legal advice.  The technical information in this blog was taken directly from IRS Form Publication 5405 Rev. February 2009.