Wikipedia's page on the American Recovery and Reinvestment Act of 2009 provides a lot of links and information on the Act and what it means to you. But to put it more simply, here is what you need to know in order to claim the credit.
Who qualifies as a first-time homebuyer? A “first-time homebuyer” is anyone who has not owned a house in the past three years. Furthermore, if you don’t live in the house purchased this year for the three years following the purchase, you will have to pay the credit back to the government. This credit is intended for people who live in their own houses, not house flippers or speculators.
What is a refundable tax credit? When tax professionals and the IRS talk about “refundable tax credits,” they do not mean that you have to pay the credit back to the government. A refundable tax credit means that if you owe less tax than the amount of the tax credit, you will receive a refund—even if you have no other tax liability for 2008. That’s not a bad deal. In other words, if you owe $200 to the government before claiming the credit, and you qualify for $8,000 for the first-time home buyer credit, rather than paying the government, you will receive a check for $7,800. Even if you had no income in 2008, owed no tax, and purchased a qualifying house in 2009, the government will send you a check for $8,000.
What if I bought the house last year? If you purchased a house in 2008 and were a first-time buyer, you qualify for the older refundable tax credit with a maximum of $7,500. This require that you pay the $7,500 tax credit back over the course of fifteen years, starting two years after the date of the purchase. This is still a good deal. As time goes on, thanks to inflation, you are paying back this “loan” with money that has smaller purchasing power. To qualify for the new credit with the maximum of $8,000, you must be a first-time home buyer and the sale must take place between January 1, 2009 and November 30, 2009.
Do I qualify for the full $8,000? The actual credit you will receive is 10% of the purchase price of the home or $8,000, whichever amount is lower. If your modified adjusted gross income (MAGI) as a single taxpayer is over $75,000 or if your income as a married couple is over $150,000, your credit will be phased out. The credit will be eliminated if your income is above $95,000 (single) or $170,000 (married).
How do I claim the home buyer tax credit? You can claim this credit when filing either your 2008 or your 2009 income tax return. For example, if you believe that your income level in 2009 will be too high to qualify for the credit but you already know that your 2008 income is low enough to qualify for the full amount of the credit, you can claim the credit on your 2008 income tax return.
If you have filed your taxes already, you will be required to file an amended income tax return if you want to receive the credit this year with your 2008 refund.
We are not tax professionals and none of what is written here should be considered tax advice. You are solely responsible for your own tax return, and any questions should always be directed to your tax accountant or the IRS.
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