On February 17, 2009  President Obama signed into law the American Recovery and Reinvestment Act 2009.  A key component of this act is the First Time Home Buyers Tax Credit.   

The First Time Home Buyers Tax Credit provides for an $8,000 credit (or up to 10% of the purchase price) for first-time home buyers for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009.  The credit does not have to be repaid*. The credit will be claimed on a tax return to reduce the purchaser’s income tax liability.  If any credit amount remains unused, then the unused amount will be refunded by check to the purchaser. An example would be; if a qualified buyer is entitled to a full $8,000 credit and owes $3,000 on their tax return they would receive a $5,000 rebate check from the government.

 

In order to qualify as a first time buyer you cannot have owned a house in the past three years.  The home purchase must be your principal residence for a minimum of 3 years to avoid recapture.  

*If the home is sold before 3 years the tax credit must be repaid. This provision is designed to prevent “flipping” houses in order to get the credit.

 

Another requirement to qualify for the tax credit are income levels (please see chart below for income limits) 

 

 

TYPE
INCOME LIMIT
PHASE OUT START
Single Filers
$95,000
$75,000
Married Filers
$170,000
$150,000

 

This means that for singles making over $75,000 and couples making over $150,000 the credit is proportionately reduced as incomes approach $95,000 and $170,000 repectively.  As an example if a couple makes $165,000 the excess amount is used to create a fraction.  $15,000/$20,000 (.75) times the credit amount. 75% or $6,000 of the credit would be disallowed.  The couple would get a $2,000 credit.

 

 

***As with any tax law change please check with your tax advisor for your particular credit allowance or tax law changes that may take place.  The above information is accurate as of February 19, 2009.