First-time homebuyers are eligible to claim a tax credit equal to 10 percent of the purchase price up to a maximum of $8,000 ($4,000 for married individuals filing separately) when they buy their first principal residence after April 8, 2008 and before December 1, 2009.  The credit is refundable meaning that if you do not owe taxes the credit or part of it will be paid to you after filing your tax return.

According to the American Recovery and Reinvestment Act of 2008 to fully benefit from the tax credit, the homebuyers must use their new home as a principal residence for a minimum of three years from the purchase date. This means that for homes purchased in 2009, the credit would have to be paid back if the home ceases to be the main residence of the taxpayer during the first three years.  In this case, the entire credit must be repaid on the taxpayer’s return in the year of the sale of the house.

Who qualifies and for which homes?

• Taxpayers who have not owned a principal residence at any time during the three years prior to the purchase date.
• Married taxpayers who are living apart or are separated both must qualify as first-time buyers at the time of the purchase in order to claim the credit. 
• Taxpayers who owned a principal residence outside of the USA within the last three years are eligible for the credit.
• Taxpayers who were affected by Hurricane Katrina and who have owned but not used their property as a principal residence within the last three years may be eligible to claim the first-time homebuyer credit. 
• Taxpayers whose names are on the deed and the mortgage even though they may not be making the mortgage payments may qualify for the credit.  The taxpayers must live in the home. 
• Any house purchased as a principal residence by qualifying taxpayers.  The home must be located in the United States to qualify for the tax credit.
• Homes that are constructed are considered “purchased” for purposes of the December 1, 2009 deadline on the first date the home is occupied.

Who does not qualifies and  which homes are not qualified?

• The credit is reduced or phased out for the taxpayers whose modified adjusted gross income (MAGI) of  :
  • $150,000 to $170,000 for a married couple filing a joint return.
  • $75,000 to $95,000 for other taxpayers.
• Taxpayers who buy a home from a close relative (spouse, parent, grandparent, child or grandchild).
• Taxpayers who are nonresident aliens.
• Taxpayers who owned a home as a principal residence during the last three years.
• Vacation homes and rental property do not qualify for the credit.
• Homes located in the U.S. territories do not qualify for the credit.

Additional information on the first-time homebuyer credit can be obtained on the IRS website by following the link 
 
http://www.irs.gov/newsroom/article/0,,id=206291,00.html

Give us a call today if you think you qualify and need tax advise before making a purchase.

Natalia Siegel, Senior Accountant