First Time Home Buyer Tax Credit

A first time home buyer tax credit of up to $8,000 is available if you meet the income requirements and purchase your home in 2009. This tax credit is a revised version of the tax credit which was offered to first time home buyers during 2008.

Tax credits are available on homes purchased with all types of home loans.

First Time Home Buyer Tax Credits: Details

In 2008 and 2009 two different Acts were passed by Congress to provide tax credits to first time home buyers. Both Acts were designed to help stimulate the economy by encouraging home purchases by first time buyers as well as buyers who had not owned a home in the last three years. Although the two Acts had similar goals, the details of the two Acts are very different.

Both Acts were designed to put money in the home buyer's pocket - either by reducing the homeowner's tax bill or increasing their tax refund by the amount of the tax credit.

The tax credits have no effect on the mortgage loan or actual home purchase. For example, claiming the tax credit does not affect the:

• Type of mortgage loan
• Mortgage terms
• Mortgage qualification
• Closing costs
• Mortgage payments

2008 Version

The Housing and Economic Recovery Act of 2008 created a first time home buyer tax credit that is basically an interest-free loan. The home buyer must repay the amount of the tax credit over a 15-year period.

Amount of Credit

The amount of the credit is 10 percent of the home's purchase price to a maximum of $7,500 for a single taxpayer or a married couple who file their taxes jointly. A married taxpayer who files a separate return is limited to a tax credit of $3,750.

Purchase Timeframe

The credit applies to homes purchased after April 8, 2008 and before July 1, 2009.

Eligibility

To be eligible for the full tax credit, the home buyer's modified adjusted gross income (MAGI) must be $75,000 or less for single taxpayers or $150,000 or less for married couples who file a joint return. Taxpayers who have a slightly higher MAGI may be eligible for a partial tax credit. The MAGI is your Adjusted Gross Income plus any deductions you might be taking on your tax return for student loans, higher education costs, IRA contributions or foreign housing.

You are not eligible for the tax credit if:

• Your MAGI exceeds the stated qualifications
• You owned another principal residence within three years of purchasing this new home
• The home is not located in the United States
• You buy your new home from a relative
• Your home financing comes from tax-exempt mortgage revenue bonds
• You don't use your home as your principal residence for the entire year
• You have nonresident alien status
• You claimed, or were eligible to claim, the District of Columbia first time home buyer credit

Claiming the Credit

Home buyers calculate the credit on their federal tax returns using the IRS Form 5405 and claims their tax credits on the Form 1040. They need to use the 2008 tax return if the home was purchased in 2008 or the 2009 return if the home was purchased in 2009. The credit is fully-refundable, meaning that the home buyer can claim the full amount of the tax credit even if their tax liability is less than the amount of the tax credit.

Repaying the Credit

A home buyer is required to repay the loan over a 15-year period. If they purchased the home in 2008, and claim the credit on their 2008 federal tax return, they need to start repaying one-fifteenth of the credit on their 2010 and on every tax return for the next fourteen years. Detailed instructions and repayment exceptions are listed on the IRS website.

2009 Version

The American Recovery and Reinvestment Act, which was passed by Congress in 2009, included a tax credit program for first time home buyers. The tax credit offered in this program does not have to be repaid by the home buyer.

Amount of Credit

The actual amount of the tax credit for a home buyer is equal to 10 percent of the home's purchase price, the same as the tax credit for 2008. The 2009 Act authorized a tax credit of up to $8,000 for first time home buyers, versus the $7,500 maximum in the 2008 tax credit program.

Purchase Timeframe

The credit applies to homes purchased on or after January 1, 2009 and before December 1, 2009.

Eligibility

The maximum MAGI for the 2009 program is $75,000 for single taxpayers and up to a $150,000 MAGI for married couples who file a joint federal tax return. Partial tax credits are available for tax payers with slightly higher MAGI levels.

To qualify for the tax credit, the home:

• Must be the home buyer's principal residence
• Can be a single-family home, townhouse, condominium, manufactured home or a houseboat
• Can be either a resale or a newly-constructed home (either by a home builder or the home owner)

Claiming the Credit

The home buyer calculates the amount of their tax credit using IRS Form 5405. The amount of the tax credit is then entered on line 69 of their federal 2009 income tax return Form 1040.

Stay Up to Date on Home Buyer Assistance Programs

LoveToKnow Mortgage has well-researched and informative articles from mortgage experts. However, the opportunities for homebuyers sometimes change so rapidly that you should check the Internet to get up-to-the-minute information on home buyer assistance programs offered by the federal government as well as state and local governments. Reliable sources of information include:

• Tax credit details
• FHA loans
• FannieMae
• Veterans Affairs loans and programs

• List of Popular Mortgage Companies
• FHA Loan Guidelines
• Amortization Table

• FHA Mortgages and Home Inspection Requirements
• Help for Single Moms to Buy a House
• Escrow
• FHA Debt to Income Guidelines
• Free Home Inspection Forms

• California Mortgage FHA Home Loan First Time Home Buyer
• Government Grants for First Time Home Buyers
• First Time Home Buyer
• First Time Home Buyer Loans
• First Time Home Buyer Programs