Getting Familiar with the $8000 Federal Tax Credit
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Federal Tax Credit
1 What’s the new federal homebuyer tax incentive for 2009?
The 2008 $7,500, repayable credit is increased to $8,000 and the repayment feature is eliminated for 2009 purchasers. Any home that is purchased for $80,000 or more qualifies for the full $8,000 amount. If the house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home for $75,000, the credit would be $7,500. It is available for the purchase of a principal residence on or after Jan. 1, 2009 and before Dec. 1, 2009.
2. Who is Eligible?
Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had any ownership interest in a home in the three years previous to the day of the 2009 purchase.
3. How does the Tax Credit Work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax return a person has total tax liability of $9,500, an $8,000 credit would wipe out all but $1,500 of the tax due. ($9,500 - $8,000 = $1,500)
4. So what happens if the purchaser is eligible for an $8,000 credit but their entire income tax liability for the year is only $6,000?
This tax credit is what’s called "refundable" credit. Thus, if the eligible purchaser’s total tax liability was $6,000 , the IRS would send the purchaser a check for $2,000. The refundable amount is the difference between $8,000 credit amount and the amount of tax liability ($8,000 - $6,000 = $2,000). Most taxpayers determine their tax liability by referring to tables that the IRS prepares each year
5. Is there an income restriction?
Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the credit if their income is no more than $75,000. Married couples who file a Joint return may have income of no more than $150,000.
6. Whats the definition of "Principal Residence?"
Generally, a principal residenceis the home where an individual spends most of his/her time (generally defined as more than 50%). It is also defined as "owner-occupied" housing. The term includes single-family detached housing, condos or co-ops, townhouses or any similar type of new or exsisting dwelling. Even some houseboats or manufactured homes count as principal residences.
7. Are there restrictions related to the financing for the mortgage on the property?
In 2009, most financing arrangements are acceptable and will not affect eligibility for the credit. Congress eliminated the financing restriction that applied in 2008. (In 2008, purchasers were ineligible for the $7,500 credit if the financing was obtained by means of mortgage revenue bonds.) Now, morgage-revenue bond financing will not disqualify an otherwise-eligible purchaser.
8. Do I have to repay the 2009 tax credit?
NO. There is no repayment for 2009 tax credits.
9. Do 2008 purchasers still have to repay their tax credit?
YES. The $7,500 credit in 2008 was more like an interest-free loan. All eligible purchasers who claimed the 2008 credit will still be required to pay it over 15 years, starting with their 2010
10. How do I apply for the credit?
There is no pre-purchase authorization, application or similar approval process. All eligible purchasers simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form 5405 that will be attached to the 1040. If you are a little impatient and want the credit now file an amendment to your 2008 taxes by filing IRS Form 1040X and Form 5405 as soon as you close. The typical time you get your refund back is 45-60 days.
