Wednesday, March 25, 2009

2009 First Time Home Buyer Tax Credit

The 2009 First Time Home Buyer Tax Credit is part of the American Recovery and Reinvestment Act signed by President Obama into law on February 17, 2009 to revive the housing market. By providing a $8000 tax credit to first time home buyers, this credit aims to increase the number of buyers and consequently stimulate the slumped housing market in the US.

This 2009 Tax Credit differs form the 2008 Tax Credit in two major ways.
(i) The 2009 Tax Credit allows for a credit of up to $8000 while the 2008 credit allows for only up to $7500
(ii) The 2008 credit has to be repaid over 15 years, effectively making it a loan. The 2009 credit does not have to be repaid

Essentially, there was a tax credit introduced in 2008 but the 2009 version of the tax credit is even better. The key points for the 2009 Tax Credit are below:

Credit Amount:
The 2009 Tax Credit allows for a credit of 10 percent of the home value to a maximum of $8000. For example, if the property value is $75,000, the credit is only $7500. But if the property is $200,000, then the credit is the $8000 maximum.

First Time Home Buyer:
The credit is for First Time Home Buyers, which is defined as someone who has not owned a primary residence the past 3 years. The home has to be purchased between January 1, 2009 and November 30, 2009, inclusive. The home buyer has to live in the home for 3 years or the credit will have to be repaid.

How to Claim the Credit
The credit is claimed along with filing your tax return. This is a refundable credit which means that if your total tax liability is less than $8000, the IRS will send you a refund for the difference. For example, if you purchase a home that qualifies you for the total $8000 but your tax liability is only $7000, then the IRS will refund you $1000.

Who is Not Eligible
The following categories of buyers are not eligible:
(i) Your Modified Adjusted Gross Income exceeds $170,000 for joint filers and $95,000 for single filer. The credit phase out starts at $150,000 for couples and $75,000 for single filers.
(ii) You buy your home from a close relative
(iii) You stop using your home as your main home
(iv) You sell the home before the end of three years
(v) You are a non-resident alien

For those who bought their home in 2008, the old $7500 tax credit applies which means it has to be repaid.

Since the average price of a home in the US is about $200,000, this means that the US government is contributing $8000 or 4 percent of the purchase for the home buyer. In the New York City metro area where the average price is around $500,000, it means buyers get a 2 percent contribution from the government.

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