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Buyers Tax Credit

Q.
Who is eligible to claim the tax credit?

A.
First-time home buyers purchasing any kind of home -- new or resale. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 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.

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

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

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

A.
For the purpose of this legislation a first-time home buyer is someone who hasn't owned a principal residence during the three-year period prior to the purchase. For married buyers, the law tests the homeownership history of both the home buyer and his/her spouse.

Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

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

A.
The tax credit amount is reduced for buyers with a modified adjusted gross income 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 modified adjusted gross income of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with modified adjusted gross incomes between these amounts.

Q.
What types of homes qualifies for the tax credit?

A.
Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000 / $500,000 capital gain tax exclusion for principal residences.

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

A.
The most significant difference is that this tax credit does not have to be repaid. Because the previous credit had to be repaid, it 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.

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

A.
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 applications 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.

Q.
This tax credit is "refundable." What does that mean?

A.
The home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this results in the government sending the taxpayer a check for a portion or the entire amount of the refundable tax credit.


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