According to the new legislation, a first time home buyer is defined as someone who has not owned a principle residence in the past three years. Those three years are counted up to the date you take possession of the house you buy in 2009. This means that even if you've owned a home in the past, you can still take advantage of the tax credit as long as you haven't purchased a primary residence since 2006.
The same goes for married tax payers - they must both be first time home buyers. For non-married joint buyers, only one of them needs to be a first time home buyer, or someone who hasn't owned a primary residence in the past three years.
Qualifying homes include:
Homes that are being re-sold
The main restriction is that the credit is only for those who buy a home as their primary residence. So investors looking to buy a rental property would not qualify for the credit. However owning a vacation home or a rental property already does not neccessarily disqualify you from taking advantage of the credit (as long as you haven't owned a primary residence in the past three years).
A Look at the Numbers
The tax credit is equal to 10% of the purchase price of the home, up to $8,000. The amount of the credit you can qualify for is related to how much money you earn. Here's how the credit is scaled:
Single home buyers earning 95K or less qualify. If you make 75K or less, you qualify for 100% of the $8000. If you make halfway, 85K, you qualify for 50% or $4000. The credit phases out gradually between 75K and 95K of income. For example, if you make halfway between the income limits, 85K, you qualify for up to half of the credit.
The same rate applies for married couples and joint buyers whose incomes limits are doubled to $150,000 to $170,000. Married couples or joint buyers whose incomes are less would receive the full $8000 credit. At an income level of $160,000, halfway between 150 and 170, the buyers would receive half the credit - or $4,000. And the credit phases out altogether at $170,000.
This credit represent a significant amount of money. One of the biggest points of difference for the new credit from the one congress passed in July of 2008, is that the new credit does not have to be paid back.
In addition, it's refundable, which means that if you've paid all your taxes as you go with an automatic payroll deduction, you would receive an $8,000 check from the IRS.
If you're committed to buying a house in 2009 and want to use the $8000 tax credit for a downpayment, consult with your certified public accountant.
Qualifying home buyers will need to make their home purchase between January 1, 2009 and December 1, 2009. And the home has to remain their principal residence for the following three years.
The new tax credit coupled with historically low mortgage rates and rising affordability, offers buyers a great opportunity if they act fast.
If you're interested in learning more about the new tax credit or about homes in your area, speak with a local real estate agent soon.
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