Homebuyer Tax Credit Guide
UPDATE: Homebuyer Tax Credit Program has been extended & expanded!
- Tax credit now available to buyers who purchase by April 2010
- $8000 credit to first time homebuyers and those who haven't purchased a home in the last 3 years
- $6,500 credit to current homeowners
More than 1.4 million buyers have already qualified for the homebuyers tax credit. Take advantage while you can, find a real estate agent in your area and start vetting lenders to find the best deal on a home loan while the rates are low.
As part of President Barack Obama’s stimulus package, a tax credit for first time home buyers was offered. Although the original $15,000 credit was shot down in negotiations, an $8,000 home buyer tax credit survived.
How the Homebuyer Tax Credit Programs Works
- Eight grand, one time only. The home buyer’s tax credit was intended to be ten percent of the purchase price of a house, but wound up being capped at $8,000. Unlike a previous $7,500 credit, though, this one is free-and-clear and does not have to be repaid. Until now the program was aimed strictly at first-timers and principal residences. However, now current homeowners can also take advantage of the tax credits.
- First time buyers defined. A tax credit for first time home buyers would exclude anyone who’s bought a principal residence within the last three years. By definition, you could own a vacation home while renting your principal home, but still qualify as a “first time home buyer.”
- Current homeowners defined. To be eligible for the tax credit current homeowners must have owned their home for at least five years. Current homeowners can expect a credit of $6,500.
- Until 2010 only. The first time home buyer tax credit only applies to those who have signed a purchase agreement and have closed on the home by June 30, 2010. Although Congress did extend the program, some Congressmen have already stated that this is likely to be the only extension of the program.
- Income limits. Currently income limits have also been increased. Limits are now set at a max of $75,000 for a single person to qualify for a first time home buyer’s tax credit. That limit for couples is now $225,000 up from the previous limit of $150,000.
- Homes that are eligible. The tax credits can only be used for primary residences, not for investment properties or second homes. For current homeowners, the home being purchased can't exceed $800,000.
- “Recapture.” If the buyer sells the house within three years, the $8,000 credit would then have to be repaid to the government. Exceptions would apply in certain cases, such as death or divorce.
- Getting the tax credit. To receive the tax credit simply claim the credit on your federal income tax return. When filling out your 1040 income tax form you'll include the credit on line 67.
- Further extension for military personnel. The tax credit is extended even further for military personnel serving outside the U.S. more than 90 days. For these individuals the credit will be availble through June 30, 2011.
The tax credit for first time home buyers is still evolving and being tweaked. There’s still talk of expanding the program to a $15,000 limit. Florida and Missouri, in an effort to revive their housing sales, are working out rather complicated schemes to apply the $8,000 towards the down payment on a house. As the labor market stagnates and home prices continue to erode, keep an eye out for more fine-tuning on these policies (often coupled to other measures that will hopefully get things rolling again).