First Time Home Buyers Stimulus: What You Need to Know About the Tax Credit

First Time Home Buyers Stimulus: What You Need to Know About the Tax Credit
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Good news for first time homebuyers! The government has extended the credit to allow you to close on your house Sep 30, 2010. In addition, military personal on extended leave outside the U.S. have an extra year to buy their first home and claim their credit.

Under the stimulus plan passed in February, the government decided to give first-time homebuyers a tax credit of up to $8000 dollars. As of November 2009, the credit was extended to include new home purchases made by April 30, 2009, and closed on by Sep 30, 2010. There aren’t that many strings attached either. Here’s what you need to know to take advantage of the first-time homebuyers tax credit.

  • First, you have to be a first-time homebuyer. For the purposes of this tax credit, it says you cannot have owned your primary residence in the past three years. So, if you bought a house and sold it more than three years ago, and you’ve been renting ever since, you should qualify.

  • Second, in order to take advantage of the first time homebuyers tax credit from the 2009 stimulus plan, the IRS Economic Stimulus Hotline says you have to buy a house between January 1, 2009 and Sep 30, 2010 and fill out the IRS form 5405. If you are a long term homeowner, replacing your primary residence, you may be eligible for a $6,500 credit.

  • Third, your income has to qualify. According to the IRS, the first time homebuyer tax credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000, or $150,000 for joint filers. Effective Nov 6, 2009, the phase out ranges start at $125,000, or $225,000 for married couples.

If these qualifications are met - a first-time homebuyer should be eligible to get a tax credit of ten percent of the purchase price of the house, up to a maximum of $8,000 or $4,000 for married individuals filing separately.

The realtors association explains, every dollar of the first-time homebuyer tax credit would reduce your taxes by a dollar. So, if you owe $9500 in taxes without the tax credit, and qualify for the full $8,000, you’ll only owe $1,500. If your taxes are $6000, you’ll actually get $2000 back.

However, if you sell the home or stop living there in 36 months, the IRS says you’ll have to repay the credit. At least, that’s better than the 2008 stimulus program. The first-time homebuyers tax credit in the 2008 stimulus program was really an interest-free loan for up to $7500 dollars, which means people have to pay it back over 15 years.

Of course, it’s best to consult with a trained tax professional if you have questions about your specific situation. You can also educate yourself by learning more about mortgages or refinancing. And first-time homebuyers should also learn more about mortgage closing costs.