Federal Homebuyer Tax Credit Extended / Expanded! 

What is this federal tax credit? Through the Worker, Homeownership and Business Assistance Act of 2009, Congress has extended a federal tax credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence and expanded a new federal tax credit of up to $6,500 to qualified repeat home buyers who purchase a new primary residence for sales occurring by April 30, 2010. In circumstances where the purchase agreement is executed/signed by April 30, 2010, the home must close escrow by June 30, 2010 to qualify. People who are claimed as dependents by a taxpayer or are under the age of 18 do not qualify for a tax credit.  

Is there a difference between a tax credit and a tax deduction? Yes. The difference between a tax credit and a tax deduction is that a tax credit is dollar-for-dollar refundable where a tax deduction is deducted from the amount of income that is taxed. Purely for example, if a taxpayer had an $8,000 tax credit and only owed $2,000 in federal taxes they would be refunded $6,000. In the same example with $2,000 of federal taxes owed but with an $8,000 tax deduction and assuming the taxpayer is in a 15% tax bracket, the taxpayer would owe $800 ($2,000 - $1,200 (15% of $8,000) = $800).  

Do I ever have to pay back the tax credit I receive? Maybe. You will never have to pay back any of the tax credit you receive if you stay in the primary residence purchased to qualify for three or more years. However, if you move out or sell the home prior to three years then you will be responsible for paying back the entire tax credit received.  

Tell me about the qualified first-time home buyer tax credit. First off, due to the deceiving title, it is important to know the definition of a first-time home buyer: those who have not owned a primary residence within the last three years. Even if said person owned a primary residence over three years ago, they are now re-considered a first-time home buyer. The tax credit for first-time home buyers is 10% of the purchase price of the home up to a maximum of $8,000. Single taxpayers and married couples who file a joint return may qualify for the full $8,000 tax credit. If either one of the married persons has owned a primary residence in the last 3 years, neither would qualify for this tax credit (although they may qualify for the repeat home buyer tax credit). Should a parent who will not live in the property co-sign for the loan for their child, the child would still be eligible for the tax credit.  

Tell me about the qualified repeat home buyer tax credit. Repeat home buyers must have owned and resided in the same home for five consecutive years of the previous eight years. For married couples, both persons must meet this criteria. The tax credit for repeat home buyers is 10% of the purchase price of the home up to a maximum of $6,500. Repeat home buyers do not have to purchase a more expensive home than their current one to qualify for this tax credit.  

Are there any income limitations? Yes. The annual income limit for first-time home buyers with sales occurring between January 1, 2009 - November 6, 2009 is $75,000 for single taxpayers and $150,000 for married couples filing jointly. On November 7, 2009 Congress expanded the income limitations for sales after this date - June 30, 2010 to $125,000 for single taxpayers and $225,000 for married couples filing jointly. Even if incomes exceed these figures by up to $20,000, these buyers will still be eligible for partial tax credits.  

Is there a minimum or maximum home sales price that applies? There is no minimum price, although it is important to note that the first-time homebuyer tax credit pays out up to 10% of the sales price to a maximum of $8,000 and the repeat buyer tax credit pays out up to 10% of the sales price to a maximum of $6,500. Therefore purchases below $80,000 will have a reduced tax credit amount for first-time home buyers and purchases below $65,000 will have a reduced tax credit amount for repeat buyers. The maximum sales price allowed for both of these programs is $800,000.  

Do the tax credits apply to real estate contract (commonly known as seller-financing) purchases? Yes. Like other types of purchases, your tax preparer will need proper sales and closing paperwork including the settlement statement.  

Other restrictions. Home purchases from family members / relatives of the taxpayer or the taxpayer’s spouse are exempt from receiving a tax credit. Furthermore, Congress recognizes the unique circumstances surrounding certain members of the military, the foreign service and the intelligence community. Qualified service members in either of these categories will have an extension of one year (executed purchase agreements must be done on or before April 30, 2011 / sale must close on or before June 30, 2011).  

Should you have more specific questions about unique situations please consult a qualified tax advisor or legal professional.