In 2008 Congress passed the Housing and Economic Recovery Act, which included a tax credit for first-time homebuyers. Initially this credit had little to be excited about – it was essentially an interest-free loan of up to $7,500, but the new and improved version enacted by the American Recovery and Reinvestment Act of 2009 is definitely worth some attention. First-time home buyers can now get a tax credit of up to $8,000 if they purchase a home before 12/1/2009. This credit does not have to be repaid as long as the buyer continues to own and occupy the home as a principal residence for at least 36 months. It is free money! Even better the buyer can elect to take the credit for a 2009 purchase against their 2008 taxes instead of waiting to file their 2009 return, and what most people I come across don’t seem to realize is that you can file an amended tax return for 2008 if you have already filed without the credit.

Here are the limitations: The old credit applies to homes purchased after 4/8/2008 and before 1/1/2009. This maximum amount of this credit is $7,500, and must be repaid over 15 years. The new credit maximum is $8,000 and applies to homes purchased in 2009 before December 1^st, and as previously stated, can be retroactively claimed on the 2008 tax return. In the case of new construction the first date of occupancy is considered to be the purchase date. Furthermore, the credit is a refundable credit, which means that the taxpayer need not otherwise have a tax liability to claim the credit (the earned income credit works a bit like this too). Stop press: Closing date is extended to June 30 ,2010. Stop press: Closing date extended to September 30, 2010 for homes that were under contract before April 30, 2010.

The amount of the credit is 10% of the home’s purchase price up to the previously stated maxima, and this amount is halved for married individuals filing separate returns. Taxpayers will not qualify for the credit if they or their spouse have owned a principal residence within the US in the three immediately preceding years. In other words, when the IRS says "first-time" it doesn't really mean it! There are a couple of other limitations also, but these won’t affect most buyers. The credit is also phased out for higher-income taxpayers. Purchases of vacation homes and rental properties do not qualify for the credit, but owning rental property does not disqualify a first-time (under the guidelines previously discussed) purchaser of a principal residence from claiming the credit. Special rules apply to co-purchasers who are not married.

For more details contact us. It could mean money in the bank!