Lafayette Real Estate

$8000 FEDERAL TAX CREDIT FOR FIRST-TIME HOME BUYERS

     On Tuesday, Feburary 17^th, 2009, the American Recovery & Reinvestment Act of 2009 was signed, authorizing an $8,000 federal tax credit for qualified first-time home buyers purchasing a home on or after January 1, 2009 & before December 1, 2009.  The following questions and answers (FAQ’s) are designed to provide you with general guidance regarding the segment of the Act that deals with the new Tax Credit.

Who is eligible to claim the $ 8,000 tax credit?

       First-Time homebuyers purchasing any type of owner-occupied home are eligible for the “tax credit”.  To qualify, a home must be purchased on or after January 1, 2009 and before December 1, 2009.  The purchase date is considered the closing date.

     The taxpayer’s “Modified Adjusted Gross Income" (MAGI) is limited to $ 75,000 for single taxpayers & $ 150,000 for married taxpayers.  There are some partial tax credits available if the MAGI exceeds the limits. (See below).

What is tax credit?

     A tax credit is a dollar-for-dollar reduction in what the taxpayer owes.  That means a taxpayer who owes $ 8,000 in federal income taxes, and who receives a $ 8,000 tax credit, would owe nothing to the IRS.

If the taxpayer owes $1,000 in federal income taxes & uses the new tax credit, they would receive a $ 7,000 refund.  This type of tax credit is called a “refundable” credit.

The tax credit is “refundable”.  What does that mean?

      The fact that the tax credit is “refundable means the home buyer’s credit can be claimed even if the taxpayer has little or no federal income tax liability to offset the credit.  Typically this involves the government sending the taxpayer a refund check for a portion or even all of the amount of the refundable tax credit.

What is the definition of a “first-time home-buyer?” 
     The new law defines “first-time home-buyer” as a buyer who has not owned a principal residence during the three-year period prior to purchase.  For married taxpayers, the law tests the home history of both the home buyer & his/her spouse.  If one does not qualify, then the married couple does not qualify.

What type of home qualifies?

     Any home purchased by an eligible first-time home buyer will qualify for the credit, provided the home will be used as a principal residence & the buyer has not owned a home in the previous three years.  This includes single-family detached homes & attached homes like condos & townhomes.

If the home is modestly priced, is the tax credit still $ 8,000?

       Generally, for home buyers purchasing a home priced less than $ 80,000 the tax credit is equal to 10% of the purchase home price.  Therefore, a first-time home buyer purchasing a home for $65,000 would receive a $ 6,500 tax credit.

What is the “Modified Adjusted Gross Income” (MAGI)?

       “Modified  Adjusted Gross Income” (MAGI) is defined by the IRS.  To find it, a taxpayer must first determine “adjusted gross income” (AGI).  On IRS Form 1040 & 1040A, AGI is the last number on page 1 and is the first number on page 2 of the form.  For Form 1040EZ, AGI appears on line 4. 

     After you have the AGI, add certain amounts such as foreign income, foreign housing deductions & deductions for higher education costs.  Questions about the taxpayer’s MAGI should be directed to your tax preparer, CPA or Attorney.

If my Modified Adjusted Gross Income (MAGI) is above the limit, do I qualify for any tax credit?

     Maybe.  It depends on your income.  Partial credits of less than the $ 8,000 are available for some taxpayers whose MAGI exceeds the phase-out limits.  The credit becomes totally unavailable for individual taxpayers with a MAGI of more than $ 95,000 and for married taxpayers filing joint returns with a MAGI of more than $170,000.

     As an example of the “phase-out”, assume a married couple has a MAGI of $ 160,000 ($10,000 above the $150,000 limit).  Dividing the $10,000 overage by $20,000 ($20,000 is the set number for this calculation single or married taxpayers (s)) equals 0.5.  When you subtract the 0.5 from 1, that gives you 0.5. To determine the amount of partial credit, multiply $ 8,000 by the 0.5 and you have $4,000.  That’s the partial credit allowed in this example.

Do I have to repay the tax credit?

     No.  If the taxpayer lives in the home as their principal residence for a minimum of three years, there is no repayment.  If the taxpayer fails to live in the property for the three year period, the entire amount of the tax credit is recaptured upon sale of the property.

What paperwork is required prior to or at the Closing?

     None.  At this time, the paperwork required to claim the tax credit will be complete by the taxpayer or their tax preparer for their tax return filing.

Disclaimer: F.C. Tucker Company is providing this information for your general understanding.  F.C. Tucker does not offer legal advice.  Only a CPA, Attorney or Tax Preparer can advise you of the tax implications and/or benefits of this available tax credit.  Consult a qualified advisor prior to taking action with this information.