First-Time Home Buyer $8,000 Tax Credit Frequently Asked Questions

1.  Who is eligible to claim the tax credit?

First-time home buyers purchasing any kind of home-new or resale-are eligible for the tax credit.  To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before November 30, 2009.  For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

2.  What is the definition of a first-time home buyer?

The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase.  For married taxpayers, the law tests the home buyer and his/her spouse.

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit.  However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter.  Ownership of a vacation home or rental property not uses as a principal residence does not disqualify a buyer as a first-time home buyer.

3.  How is the amount of the tax credit determined?

The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $8,000.

4.  Are there any income limits for claiming the tax credit?

The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return.  The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for tax payers with MAGI between these numbers. 

5.  What is "modified adjusted gross income"?

Modified adjusted gross income or MAGI is defined by the IRS.  To find it, a taxpayer must first determine "adjusted gross income" or AGI.  AGI is total income for a year minus certain deductions (known as "adjustments" or "above the line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted.  On Forms 1040 and 1040A, AGI is the last number on page 1 and the first number on page 2 of the form.  For Form 1040-EZ, AGI appears on line 4 (as of 2007).  Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.

To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student loan deductions, IRA-contribution deductions and deductions for higher-education.

6.  If my modified adjust gross income (MAGI) is above the limit do I qualify for any tax credit?

Possibly, it depends on your income.  Partial credits of less than$8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

7.  How is the home buyer tax credit different from the tax credit that Congress enacted in July of 2008? 

The most significant difference is that this tax credit does not have to be repaid.  Because it had to be repaid, the previous "credit" was essentially an interest-free loan.  This tax incentive is a true tax credit.  However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount.  Certain exceptions apply.

8.  How do I claim the tax credit?  Do I need to complete a form or application?

Participating in the tax credit program is easy.  You claim the tax credit on your federal income tax return.  Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return.  No other application or forms are required, and no pre-approval is necessary.  However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests.

9.  What types of homes will qualify for the tax credit?

Any home that will be used as a principal residence will qualify for the tax credit.  This includes single-family detatched homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.  The definition of principal residence is identical to determine whether you may qualify for the $250,000 / $500,000 capital gains tax exclusion for principal residences.

10.  I read that the tax credit is "refundable."  What does that mean?

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

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th.  Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit.  As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000) owed.

11.  I purchased a home in early 2009 and have alread filed to receive the $7,500 tax credit on my 2008 tax returns.  How can I claim the new $8,000 tax credit instead?

Home buyers in this situation may file an amended 2008 tax return with a 1040X form.  You should consult with a tax adviser to ensure you file this properly.

12.  Instead of buying a new home from a builder, I hired a contractor to construct a home on a lot that I already own.  Do I still qualify for the tax credit?

Yes.  For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house.  In contrast, newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

Please consult with your tax or mortgage professional regarding more assistance with the First-Time Home Buyer $8,000 Tax Credit

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Information provided by NHAB (National Association of Home Builders)