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Who is eligible to claim the tax credit?

What is the definition of a first-time home buyer?

How is the amount of the tax credit determined?

Are there any income limits for claiming the tax credit?

What is "modified adjusted gross income" or MAGI?

If my MAGI is above the limit, do I qualify for any tax credit?

Can you give me an example of how the partial tax credit is determined?

How is this home buyer tax credit different from the tax credit Congress enacted in July 2008?

How do I claim the tax credit? Do I need to complete a form or application?

What types of homes will qualify for the tax credit?

I read that the tax credit is "refundable." What does that mean?

I purchased a home in early 2009 and already have filed to receive the $7,500 tax credit (enacted by Congress in July of 2008) on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?

Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot I already own. Do I still qualify for the tax credit?

Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?

I’m not a U.S. citizen. Can I claim the tax credit?

Is a tax credit the same as a tax deduction?

I bought a home in 2008. Do I qualify for this credit?

I’m planning to become a first-time home buyer before Dec. 1, 2009. Is there a way to access the credit before purchasing my home and before filing a 2009 tax return?

If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?

For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending upon which year my credit amount is the largest?

Who is eligible to claim the tax credit?
First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify, you must purchase a home on or after Jan. 1, 2009, and before Dec. 1, 2009. The purchase date is defined as the date when closing occurs and the property title transfers to the home owner.

What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who hasn’t owned a principal residence during the three years prior to the purchase. For married taxpayers, this definition applies to both parties. For example, if you haven’t owned a home in the past three years, but your spouse has owned a principal residence, neither of you qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to either buyer who qualifies as a first-time buyer. For example, if a parent jointly purchases a home with a son or daughter and the child is a first-time home buyer, the child may claim the credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.

Are there any income limits for claiming the tax credit?
Yes. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.

What is "modified adjusted gross income" or MAGI?
MAGI is defined by the Internal Revenue Service (IRS). To find it, first determine your "adjusted gross income" or AGI. AGI is your total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). AGI includes all forms of income, including wages, salaries, interest income, dividends and capital gains.

To determine your MAGI, add to AGI amounts such as foreign income, and deductions for foreign housing, student loans, IRA contributions and higher education costs. Consult a tax professional for assistance.

If my MAGI is above the limit, do I qualify for any tax credit?
Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phase-out limits.

Can you give me an example of how the partial tax credit is determined?
Let’s assume a married couple has a MAGI of $160,000. The applicable phase-out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. NOTE: You divide by $20,000 since this is the difference between $170,000 (the maximum MAGI for a married couple to be eligible for the 2009 tax credit) and $150,000 (the applicable phase-out to qualify for the tax credit). When you subtract 0.5 from 1.0 (representing the full credit), the result is 0.5. To determine the amount of the partial first-time home buyer tax credit available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Another example: Assume an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows the buyer is eligible for a partial tax credit of $2,800.

These examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. Consult a tax professional regarding your specific circumstances.

How is this home buyer tax credit different from the tax credit Congress enacted in July 2008?
The most significant difference is this tax credit doesn’t have to be repaid. Because it had to be repaid, the previous "credit" was essentially an interest-free loan. The 2009 tax incentive is a true tax credit. However, if home buyers don’t use the purchased residence as a principal residence for at least three years, they must repay the tax credit amount. Certain exceptions apply.

How do I claim the tax credit? Do I need to complete a form or application?
Simply claim the tax credit on your federal income tax return. Specifically, complete IRS Form 5405 to determine your tax credit amount, then claim this amount on Line 69 of your 1040 income tax return. No other applications or forms are required and no pre-approval is necessary. However, be sure you qualify for the credit under the income limits and first-time home buyer tests.

What types of homes will qualify for the tax credit?
Any home that will be used as a principal residence qualifies. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes), and houseboats. The definition of principal residence is identical to the one used to determine whether you may qualify for the $250,000/$500,000 capital gain tax exclusion for principal residences.

I read that the tax credit is "refundable." What does that mean?
It means the home buyer credit may be claimed even if you have little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion—or even the full amount—of the refundable tax credit.

For example, if your expected federal income tax liability is $5,000 and you had tax withholding of $4,000 for the year, without the tax credit you would owe the IRS $1,000. If you qualified for the $8,000 home buyer tax credit, you would receive a check for $7,000 ($8,000 minus the $1,000 owed).

I purchased a home in early 2009 and already have filed to receive the $7,500 tax credit (enacted by Congress in July of 2008) on my 2008 tax returns. How can I claim the new $8,000 tax credit instead?
File an amended 2008 tax return with a 1040X form. Consult a tax professional for assistance.

Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot I already own. Do I still qualify for the tax credit?
Yes. When you construct a principal residence—even on a lot you already own—it’s considered "purchased" on the date you first occupy the house. In this situation, that date must be on or after Jan. 1, 2009, and before Dec. 1, 2009.

However, for newly constructed homes purchased from a home builder, eligibility for the tax credit is determined by the purchase settlement date.

Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
Yes. The 2009 tax credit may be combined with the MRB home buyer program.

I’m not a U.S. citizen. Can I claim the tax credit?
Maybe. If you are not a nonresident alien (as defined by the IRS) have not owned a principal residence in the previous three years and meet the income limits test, you may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.

Is a tax credit the same as a tax deduction?
No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income taxed. Using the same example, let’s assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

I bought a home in 2008. Do I qualify for this credit?
No, but if you purchased your first home between April 9, 2008, and Jan. 1, 2009, you may qualify for a different tax credit. Consult a tax professional for more information.

I’m planning to become a first-time home buyer before Dec. 1, 2009. Is there a way to access the credit before purchasing my home and before filing a 2009 tax return?
Yes. If you believe you will qualify for the tax credit, you may reduce your income tax withholding. Reducing tax withholding (up to the amount of the credit) will allow you to accumulate cash by raising your take-home pay. This money may then be applied to a down payment when you purchase a home before Dec. 1, 2009.

You should adjust your withholding amount on your W-4 through your employer or quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Be aware if your income tax withholding is reduced and the tax credit-qualified purchase doesn’t occur, you’ll be liable for repaying the reduced amount of income tax, as well as possible interest charges and penalties, to the IRS.

Also note, rule changes made as part of the economic stimulus legislation allow you to claim the tax credit and participate in a program financed by tax-exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a down payment. Check with your state housing finance agency to determine the availability of such a program in your community.

If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
Yes. You may choose to treat your qualified home purchase in 2009 as if the purchase occurred on Dec. 31, 2008. This means the 2008 income limit (MAGI) applies and the credit may be claimed on your 2008 return instead of your 2009 return. This timing allows you to know your 2008 MAGI with certainty and determine whether the income limit will reduce your credit amount.

If you’ve already submitted your 2008 return to the IRS, you may file an amended 2008 return claiming the tax credit. Consult a tax professional for assistance.

For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending upon which year my credit amount is the largest?
Yes. If the applicable income phase-out would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, you may choose the year that yields the largest credit amount.

*This information came from the National American Home Builders Association website found at: http://www.federalhousingtaxcredit.com/faq.php