Tax Credit Helps Home Buyers

To help jump-start the housing market, the Worker, Homeownership, and Business Assistance Act of 2009 extends and expands the first-time home buyer tax credit enacted by previous legislation. The credit is worth 10% of the home's purchase price, up to $8,000. The credit continues to make it easier for many home buyers to enter the housing market.

The earlier $8,000 tax credit was available only to first-time home buyers and to anyone who hadn't been a homeowner during the three years before closing on a new house. Now, even longtime homeowners can get a tax credit of up to $6,500, opening the door for anyone thinking of trading down�or up�or moving to a different locale.

The National Association of Home Builders, Washington, D.C., estimates that the home buyer tax credit will generate about 101,000 first-time home purchases. The NAHB anticipates another 59,000 existing homeowners will be able to buy a new house because a first-time buyer bought theirs.

Discovering their eligibility for the tax credit helped secure the decision for first-time buyers Ryan Condon, 23, and girlfriend Katie Bohren, 27, to move from their apartment and settle in a new home. They closed on their two-story place in the town of Harrison, Wis., last summer.

"Our real estate agent told us about the credit," says Condon. "It definitely piqued our interest in buying."

Here are some frequently asked questions and answers about the tax credit: Who qualifies as a first-time home buyer? Is there an income limit for the tax credit? Do I qualify for the tax credit if I'm building a house? I bought my house early in 2009 and filed my 2008 tax return claiming the $7,500 first-time home buyer credit that has to be repaid. Now the law provides for an $8,000 credit that does not have to be repaid. How do I get the $8,000 credit that doesn't have to be paid back? When do I have to buy a new house to get the credit? If I bought a house in 2009, and have already filed my 2008 tax return, can I amend my 2008 return or will I have to claim it on my 2009 return? When must I pay back the credit for the home I purchased in 2009 or 2010?

Who qualifies as a first-time home buyer?

You're eligible for the $8,000 tax credit if you have not owned another principal residence at any time during the three years before the date of purchase. If you�and your spouse, if you're married�owned a principal residence at any time during the three years before the purchase date, you are eligible for a tax credit of up to $6,500.

For an eligible purchase in 2010, you can choose to claim the credit on either your 2009 or 2010 income tax return. If you made an eligible purchase in 2009, claim the first-time home buyer credit on your 2009 tax return.

Is there an income limit for the tax credit?

If you purchased a home before Nov. 7, 2009, your modified adjusted gross income must not be more than $75,000 for single taxpayers and $150,000 for joint filers to qualify for the full credit. The credit amount phases out at higher incomes, and stops at $95,000 (single) and $170,000 (joint).

If you purchased a home after Nov. 6, 2009, your modified adjusted gross income must not be more than $125,000 for single taxpayers and $225,000 for joint filers. The credit amount again phases out at higher incomes, and stops at $145,000 (single) and $245 (joint).

Do I qualify for the tax credit if I am building a house?

Yes, as long as you moved in on or after Jan. 1, 2009, and on or before April 30, 2010. For a house you build, the "purchase date" is the date you first occupy the house.

For a house you buy from a builder, the purchase date is when the property title transfers to you.

I bought my house early in 2009 and filed my 2008 tax return claiming the $7,500 first-time home buyer credit that has to be repaid. Now the law provides for an $8,000 credit that does not have to be repaid. How do I get the $8,000 credit that doesn't have to be paid back?

You can file an amended 2008 return.

When do I have to buy a new house to get the credit?

You must buy the house after April 8, 2008, and before May 1, 2010, to qualify. Any home you buy as your principal residence in the U.S. is eligible.

If I bought a house in 2009, and have already filed my 2008 tax return, can I amend my 2008 return or will I have to claim it on my 2009 return?

You can either file an amended return to claim it on your 2008 return or claim it on your 2009 return.

When must I pay back the credit for the home I bought in 2009 or 2010?

Maybe never. You have to repay the credit on a house you bought in 2009 or 2010 only if it no longer is your principal residence within 36 months from the date of purchase. The full amount of the credit you received becomes due on your tax return for the year the home stopped being your principal residence.

You can visit the IRS Web site for more answers to tax credit and filing questions.

If you're planning to buy a house, the people at your credit union can help. You can seek advice from the professionals at your credit union about loan options, get help with credit checks, and learn about budgeting for your new purchase.

Published February 22, 2010