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IRS Urges Home Buyers to Take Advantage of $8000 Tax Credit

With the deadline quickly approaching and Congress debating whether to extend the program, the Internal Revenue Service is urging families who have not owned a home in the last three years to take advantage of the American Recovery and Reinvestment Act and buy your home before December 1.

ARRA extended and expanded the new home buyer credit. So far, it has provided a cash benefit of up to $8000 to more than 1.4 million taxpayers.

The credit is generally available to families whose modified adjusted gross combined income is $175,000 or less and single persons earning $95,000 or less. Prospective home buyers who have never owned a home or have not owned one in the past three years may qualify to get up to a $625,000 loan through participating local lenders.

Because the credit is only in effect for a limited time, those considering buying a home must act soon to qualify for the credit. Under the Recovery Act, an eligible home purchase must be completed before Dec. 1, 2009. This means that the last day to close on a home is Nov. 30, but in the biggest buyers market in decades it's possible to get qualified local realtors to help you qualify in time.

If you're considering buying a home, here are some other details about the first-time homebuyer credit: 

• The credit is 10 percent of the purchase price of the home, with a maximum available credit of $8,000 for either a single taxpayer or a married couple filing jointly. The limit is $4,000 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $80,000 or more.
• The credit reduces the taxpayer’s tax bill or increases his or her refund, dollar for dollar even if you owe no tax or the credit is more than the tax owed.
• Only the purchase of a main home located in the United States qualifies. Vacation homes and rental properties are not eligible.
• If you are building your own home or acting as your own contractor you can still qualify for the credit if you occupy your new home before Dec. 1, 2009.
• The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on the taxpayer’s modified adjusted gross income (MAGI). MAGI is adjusted gross income plus various amounts excluded from income—for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the range is $75,000 to $95,000. This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.
• For most home buyers the credit need never be repaid. You are only required to pay the credit back if, within three years of purchase, the home ceases to be your main home. For example, a taxpayer who claims the credit based on a qualifying purchase on Sept. 1, 2009, must repay the full credit if he or she sells the home or converts it to business or rental use at any time before Sept. 1, 2012.

For details on claiming the credit, see IRS Form 5405, First-Time Homebuyer Credit.

Find a qualified local realtor.

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