In an effort to stimulate the sagging economy, congress has passed The American Recovery and Reinvestment Act of 2009. Perhaps the major provision of the act is a tax credit for as much as $8,000 to first-time homebuyers, or buyers who have not purchased or owned a home in the past three years. Single taxpayers with adjusted gross incomes of up to $75,000 and married couples with incomes up to $150,000 can qualify for the full tax credit. Also, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer. One word of caution: home buyers who receive a tax credit under the provisions of this act, must use the home as a principal residence for at least three years or face a possible recapture of the tax credit amount.
Unlike the $7,500 tax credit passed in 2008, the $8,000 credit does not have to be repaid. A tax credit is a dollar-for-dollar reduction in the total amount a taxpayer owes. For example, if a qualified purchaser owed $8,000 in income taxes, his total debt would be reduced to zero. This differs substantially from a tax deduction, which essentially is based on a taxpayer's tax bracket. For example, an $8,000 tax deduction on a buyer in the 15% tax bracket would only receive a tax reduction of $1,500.
In the event a qualified purchaser does not owe any taxes at year end, he/she would receive a check in the full amount for which he/she is qualified. This amount is calculated by taking 10% of the home's purchase price up to a maximum of $80,000.
The tax credit pertains only to owner-occupied homes purchased between January 1 and December 1, 2009. The purchase date is the actual date on which a buyer takes ownership to the property. Any home that will be used as a principal residence will qualify for the credit. This includes single-family homes, condominiums, townhomes, manufactured or mobile homes, and houseboats.
Applying for the tax credit is a simple process that requires applicants to complete IRS Form 5405 to determine the amount of their tax credit, and then claim this amount on their 2009 1040 income tax return.
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