$8,000 Hombuyer Tax Credit - How Does It Work?
What Is The 2009 Homebuyer Tax Credit?
- Allows first-time homebuyers purchasing a new or pre-existing home to be eligible for a tax credit up to $8,000
- The property type must be a single-family home, townhome or condominium and used as their primary residence. (Mortgage Revenue Bonds are eligible)
- Any home that is purchased for $80,000 or more qualifies for the full $8,000 amount. If the home costs less than $80,000, the credit will be 10% of the cost
- If a home was purchased for $75,000, the credit would be $7,500
- The credit is capped based on income limits
- First-time homebuyers who purchase a principal residence on or after January 1, 2009 and before December 1, 2009 are eligible. The law:
- Defines a first-time homebuyer as a buyer who has not owned a principal residence during the three-year period prior to the purchase, and
- Tests the homeownership history of both the homebuyer and their spouse
- There is no repayment requirement for the 2009 tax credit unless the borrower sells the property within 3 years of closing or no longer occupies the property as their primary residence
- Note: Any qualifying purchase made between April 9, 2008 and December 31, 2008 was eligible for a $7,500 tax credit and is still subject to the repayment feature over 15 years – beginning with their 2010 tax return
Income Limits:
■ Single or head-of-household filers can claim the full credit if their modified adjusted gross income (MAGI) is less than $75,000
■ For married couples filing a joint return, the MAGI limit doubles to $150,000
■ The credit is equal to $8,000 for a qualified home purchase by a married couple filing jointly
■ A homebuyer that is married but filing separately qualifies for a $4,000 credit
■ The credit amount is also pro-rated based on income
Note: The tax credit is available up to $8,000
■ The credit phases-out between $75,000 - $95,000 for single or head-of-household borrowers and $150,000 - $170,000 for married filing jointly
■ The closer the borrower comes to the maximum phase-out amount, the smaller the credit will be
Example
- Couples income is $165,000
- Income limit is $150,000
- Excess income $15,000
- The excess amount is used to create a fraction $15,000/$20,000
- The disallowed portion of the credit is 75% of $8,000 or $6,000
- The couple would receive a credit of $2,000 ($8,000 - $6,000)
- The credit will reduce the amount of taxes owed
- The tax credit may be subtracted from the federal income tax liability to:
– Increase the size of the refund
– Reduce the amount owed
Full Tax Credit Example:
- Borrower owes $6,000 in taxes
- Tax credit lowers liability by $8,000
- IRS refunds borrower $2,000
- The tax credit is refundable which means the homebuyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset
Full Tax Credit Example
§ Borrower owes $7,200 in taxes
§ Tax withholding of $5,000
§ Without the credit, the borrower would owe $2,200 to the IRS
§ Borrower qualifies for tax credit of $8,000
§ Borrower receives check for $5,800 ($8,000 - $2,200)
Other Eligibility Conditions:
■ Purchases by non-resident aliens or purchase financed by proceeds from a qualified mortgage issue are not eligible
■ The credit will not result in an individual owing additional federal taxes under the Alternative Minimum Tax
■ Home purchases between relatives and other gifts of residences are not eligible for the credit
■ Loans made under federal mortgage issues (bond loans) are eligible for the tax credit
■ Other tax benefits of homeownership are still eligible
– Mortgage-interest deductions
– Capital gains tax exclusions
– Property tax deductions