Earlier this year an $8,000 credit for first time home buyers was instituted as part of the 2009 Stimulus package. The idea behind this credit was to help out first-time home buyers and encourage them to purchase a house. Sinking house prices and a stalled house building sector were the main motivations for this credit.
[edit July 8, 2010 – closing deadline extended for first time home buyers tax credit to Sept 30, 2010]
The original plan called for December 1, 2009 to be the deadline for the $8,000 credit. To get the credit your house purchase close date would have to be before Dec 1. A senate bill has just been introduced on Sept 17 which would extend the first time home buyers credit by 6 months to June 1, 2010.
From Housing Wire:
A senate bill introduced late Thursday would extend the $8,000 first-time homebuyer tax credit for six months after its current November 30 expiration date.
Maryland Democrat Sen. Benjamin Cardin introduced S.B. 1678, and it is co-sponsored by senators John Ensign (R-Nev.), Johnny Isakson (R-Ga.), Senate majority leader Harry Reid (D-Nev.) and Debbie Stabenow (D-Migh.).
Who is eligible?
If you buy a home between January 1, 2009 and June 1, 2009 and meets the following conditions:
- You must not have owned a house in the past 3 years. This is the “first time” homeowner condition.
- Your income must be less than $75,000 for singles or $150,000 for married couples. Keep in mind that singles who make up to $95k and couples who make up to $170k can get a partial credit.
Is this credit a loan?
No, this credit does not have to be paid back.
Are there any strings attached?
You have to stay in the house for 3 years. If you don’t then the money has to be paid back.
What is a “first time home buyer”?
A first time home buyer is someone who hasn’t owned a house in the past 3 years or has never owned a house. For couples – this applies to both spouses. It is important that if you sold your last house in 2006 that you don’t close on the new house within 3 years of the previous selling date or you won’t get the credit. For example if you sold your last house on June 1, 2006 then don’t close on a new house before June 1, 2009.
Is the tax credit $8,000 for everyone?
No, the actual credit is $8,000 or 10% of the house value – whichever is less. For example if your house is worth $200,000 then you would get $8,000. If the house is only worth $70,000 then you would only get 10% of $70k which is $7,000.
This is a refundable tax credit
The $8,000 credit means that anyone who is eligible for this credit can subtract $8,000 from the amount of tax owed to the IRS. If you don’t owe $8,000 in taxes then you will get a refund for the difference.
For example if Bob owes $30,000 in taxes and is eligible for the $8,000 credit then he will deduct $8,000 from $30,000 and will owe only $22,000 in taxes. Steven only owes $5,000 in taxes so if he qualifies for the credit then he will not pay any taxes and will get a refund of $3,000.