Real Estate Educator, Julie Garton-Good, recently compiled a simple and understandable Q & A about the $8,000 First-Time Homebuyer Tax Credit for The Real Estate Professional Magazine. Here is an excerpt:
The American Recovery and Reinvestment Act of 2009 has authorized a tax credit of up to $8,000 for qualified first-time homebuyers purchasing a principal residence on or after January 1, 2009 and before December 1, 2009 (eleven months).
As always, since each buyer’s situation is unique, they should see their tax advisor for interpretation.
Q: What’s the definition of a first-time homebuyer for the purpose of this law?
A: The law defines a first-time homebuyer as a buyer who has not owned a principal residence during the three-year period prior to the purchase (the date on the HUD-1 is the determining factor). For married taxpayers, the law tests the homeownership history of both the homebuyer and his/her spouse.
For example, if you have not owned a home in the past three years but your spouse did, neither of you would qualify for the tax credit. However, if an unmarried couple jointly buys a home and one person owned a home in the past three years but the other did not, that person can designate the tax credit to the other person to claim on his/her individual tax return. The same is true if a parent ( who already owns a home) cosigned a loan with his/her child. The child could claim the first-time homebuyer tax credit.
Q: If someone owns a vacation home but doesn’t live in it as a primary residence, would they qualify for the tax credit?
A: Yes. Owning a vacation home, second home, or rental that’s not used as a primary residence does not disqualify the buyer if he/she can prove that it hasn’t been used as a primary residence for the previous three years.
Q: Is a tax credit the same as a tax deduction?
A: No. A tax credit is a dollar-for-dollar reduction in the amount of tax the taxpayer owes. If someone owed $8,000 in federal income taxes and received the $8,000 tax credit, he would owe nothing to the IRS for that filing period.
Q: How is the amount of the tax credit calculated?
A: The tax credit is equal to 10 percent of the purchase price of the home, up to a maximum of $8,000.
Q: Are there income limits for claiming the tax credit?
A: Yes. The credit is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 (filing single) and $150,000 for married taxpayers filing a joint return. There is no tax credit for taxpapers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for MAGIs between these amounts.
Tune in next time for more information about the $8,000 First-Time Homebuyer Tax Credit or call a Group Realtor.