First Time Homebuyer Tax Credit

On November 6th, 2009, the president signed a bill to extend the tax credit for first-time homebuyers through June 30th, 2010.

Someone that has not owned a principal residence during the three year period prior to the purchase. In the case of a married couple, tax law looks at the ownership history of both spouses. If one of the spouses has owned a primary residence in the last three years, neither is eligible for the credit.

Yes. Your parents cannot claim any portion of the credit, but if you purchase the house as a primary residence and you meet the other qualifications for the credit you are eligible.

The credit is equal to 10% of the purchase price of the home, with a maximum credit of up to $8,000.

In order to qualify for the credit, you must have a fully executed contract by April 30th, 2010, and you must close on the transaction by June 30th, 2010.

Single tax filers who have a modified adjusted gross income of up to $125,000 are eligible for the entire credit amount. If you have a (MAGI) between $125,001 and $145,000 you will receive a pro-rated portion of the credit. If your (MAGI) is more than $145,000 you are not eligible for the credit.

Married couples who have a modified adjusted gross income of up to $225,000 are eligible for the entire credit amount. If you have a (MAGI) between $225,001 and $245,000 you will receive a pro-rated portion of the credit. If your (MAGI) is above $245,000 you are not eligible for the credit.

Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or AGI. AGI is total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

The maximum sales price to qualify for the credit is $800,000. If you purchase a house for more than $800,000 you will not be eligible for the credit.

No.

You claim the tax credit on your federal income tax return. There is an IRS Form called the 5405 that is used to determine the credit amount. You will need to provide the HUD-1 form from your closing papers to prove you purchased the home.

Yes, instead of having to wait until 2010, which is when you would file your 2009 taxes, you can file an amended 2008 return and get your money much quicker.

A tax credit is a dollar for dollar reduction off of whatever the taxpayer owes. For example, if you owed the government $2000 after you did your taxes and qualified for the $8000 tax credit, you would get a check back for $6000 from the government.

A tax deduction is subtracted from the amount of income that will be taxed. If you were in the 25% tax bracket and had an $8000 tax deduction, you would get back 25% of $8,000= $2000.