Buying a home has always been an expensive decision. Unfortunately, during the economic times that we are currently experiencing, these costs have made purchasing a home extremely difficult. With this in mind, the United States Government has offered home buyers a tax credit incentive to buy a home. Qualified "First-Time Home Buyers" can receive a credit up to $8,000 and qualified "Repeat Buyers" can obtain a credit up to $6,500 provided that the home is purchased or under contract prior to April 30, 2010. Plus, if you are under a written binding contract by April 30, 2010, you will still be able to claim the credit providing you close no later than June 30, 2010!
The first Myth that needs to be addressed is what a "Fist-Time Home Buyer" actually is... Many believe (and rightly so) that a first-time home buyer would mean that a purchaser can not have owned a home before! Not so! For the purposes of the Tax Credit, the government has been very generous is defining a "First-Time Home Buyer" as a buyer who has not owned a principal residence for the three (3) year period prior to the new purchase. One other minor requirement would be that they have never used the DC First-Time Home Buyer Credit. They will not allow double dipping!
Then there is the "Repeat Buyers" which makes one think that anyone who has ever owned a home can qualify for the Tax Credit. Not so! The definition for "Repeat Buyers requires that the home owner must have lived in their primary residence for five (5) of the last eight (8) years in order to qualify for the credit.
As is the case with most tax credits, this credit will directly reduce your tax liability. At the time you file your taxes, you will be able to subtract the amount of the credit from your tax liability. This will either increase your refund amount or reduce the amount that you owe. The amount of the credit is equal to 10% of the purchase price with a cap of $8,000 for the "First-Time Home Buyer" and $6,500 for "Repeat Buyers". To receive the full credit for single individuals, their adjusted gross income has to be less than $125,000. For married filing jointing, the adjusted gross income should be less than $225,000. And the home must be your Primary Residence. This can include single-family detached homes, condos, or town homes.
The credit is not available for purchases between relatives or by non-resident aliens. And it needs to be stated that if you sell your home within 3 years of purchase, the entire tax credit will need to be paid back to the government. Since we expected to return to the "normal" annual appreciation, it is recommended that you hold onto the home for a minimum of three years.
Finally, you need to be prepared.... The government is now requiring proof of purchase at the time you claim the credit. Don't let this scare you as it will be easy to provide the proof. All you need to do is attach a copy of your SIGNED HUD (a/k/a Closing Cost statement) that you will receive at the closing table to your Tax Return along with the required tax forms.
As of May 29, 2009, the Department of Housing and Urban Development announced guidelines for FHA lenders allowing them to make the credit available at closing for closing costs and down payments in excess of the 3.5% normally required for an FHA loan. However, in order to take advantage of this option, the lender must be able to participate in the program.
As you can see, if you are even considering purchasing or selling a home...now is the time! Time is of the essence as this credit will expire soon... For more information, please log onto the IRS website at www.irs.gov/newsroom/article/0,,id=187935,00.html.
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