Earlier this year the Federal Government passed legislation literally gifting up to $8,ooo in the form of a tax credit to first time home-buyers. Over the past year there has been a lot of confusion regarding this credit. Many people wrongly assume that this sum of money is a type of loan that must be paid back or a deduction they can make on their taxes. This is wrong! If you are a first time home buyer who was waiting to buy, read this to learn how the government will help into your new house this year.
The tax credit is literally a gift from Uncle Sam, here are the first 5 things you should know:
1. The tax credit is available to first time home buyers only. To be considered a first time home buyer you must have not owned a home in the past 3 years.
2. The tax credit is not available for the purchase of home from a parent, grandparent, child, grandchild or spouse.
3. To qualify for the maximum $8,000 tax credit a married couple’s total annual income cannot exceed $150,000 and an individual’s income can not exceed $75,000. However first time home buyers whose income surpasses these limits can still qualify for a percentage of the tax credit.
4. The purchase price of the home must be above or equal to $80,000. If the purchase price is under $80,000, the tax credit will be equal to 10% of the purchase price. (For example: if the purchase price is $75,000 the total amount of the first time home buyer tax credit would be $7,500.)
5. The amount of the tax credit will be applied to your current or expected tax liability. For example: If you owe the IRS $6,000 and qualified for the maximum tax credit of $8,000 then your total amount owed would be reduced to $2,000. If you do not owe the IRS any money then you will simply receive a check from the government for the amount of your credit.
6.First time home buyers must use the home as their principle residence for a minimum of 3 years. A principle residence is any home newly built, existing, manufactured or house boat that you will reside in.
7. To qualify for the tax credit, the home must have been purchased after January 1, 2009 and before December 1, 2009. For the purpose of the tax credit, the “purchase” date is the same as the closing date. The exception to this is for a home that is being built on a previously purchased lot, in this case the purchase date is the first date of occupancy.
8. The tax credit can be used as a down payment! A few months ago HUD approved the use of the tax credit as a down payment for FHA insured mortgages. This money can be used as a down payment, to cover closing costs or both. A qualified FHA lender can provide more details.
9. First time home buyers can apply the tax credit to their 2008 taxes. If you purchased your home after January 1, 2009 and you already filed your 2008 taxes you can still file an amendment and claim your credit now or wait and apply the credit to your 2009 taxes.
10. To claim your first time home buyer’s tax credit simply fill out the appropriate section of your 1040 tax form. You can find more information on the IRS website by clicking here.