The First Time Homebuyer Tax Credit For 2009

As part of the American Recovery and Reinvestment Act of 2009, Congress authorized a first-time homebuyer tax credit of up to $8,000. The $8,000 credit replaces the $7,500 tax rebate program that was included in last year's stimulus.

The $8,000 tax credit is a boon to first-time home buyers in places like Cincinnati or Chicago because, unlike its 2008 counterpart, the government doesn't require the 2009 version of its tax relief to be paid back over time. Buyers closing on their home in 2009 can take the credit and never look back.

Calculating your eligibility is pretty simple, too.

See the snippet from IRS Form 5405 above. It's the worksheet portion of the First-Time Homebuyer Credit. There are 10 fields of entry. Just fill in the 10 fields and -- voilà -- you've figured out your tax credit (or lack of tax credit, as the case may be). What's nice about the 5405 form, though, is that on the IRS website, the form comes standard with 3 pages of instructions about how the First-Time Homebuyer Credit works and details about who is (and who is not) eligible.

The IRS definition of "first-time homebuyer" may be different from what you expect.

According to the IRS, a first-time homebuyer is anyone who has not owned a "main home" in the last 3 years. It defines "main home" as a home in which a person has lived for most of the time.

It can include traditional homes, houseboats, trailers and other residence types.

The IRS defines what it means to be a first-time homebuyer with respect to couples. Based on its definition, there's no clean way for spouses or soon-to-be-married types to "cheat the system". Because both owners must be considered first-time homebuyers in order to claim the $8,000 credit, the IRS stymies tax filers that try to get crafty to take a tax credit when a tax credit may not be due.

Furthermore, the IRS instructions show that not every homebuyer will be eligible to claim an $8,000 credit. Some notable, exclusionary cases include first-time homebuyers who:

* File taxes separately and whose adjusted gross income exceeds $95,000
* File taxes jointly and whose adjusted gross income exeeeds $170,000
* Acquire property from a family member
* Acquire property from a corporation/partnership in which they're a majority owner
* Acquire the home by gift or inheritance

And for some buyers, the available credit may not even reach the full $8,000 limit.

The first reason why the full $8,000 may be out of reach is because the rules of the First-Time Homebuyer Tax Credit limit the credit to 10 percent of the purchase price. A home purchase price of $65,000, therefore, gets capped at $6,500. The second reason is because the amount of the First-Time Homebuyer Tax Credit starts to phase out as homebuyer income levels rise.

Tax credit phase-outs start at $75,000 for homebuyers filing separately and $150,000 on joint returns.

If you're lucky enough to get the First-Time Homebuyer Tax Credit, though, don't start singing "We're In The Money". Keep in mind that the IRS will make you repay that credit in full if the home you bought ceases to be your main home within 36 months of purchase. This is, again, to prevent people from gaming the system.

There are a few notable exceptions to the repayment rules, however. For one, provided that you sell your home to a non-relative, the tax credit repayment is limited to the amount you gain on the sale. An accountant can help you with the math on that.

In the weeks leading up to the passage of the stimulus plan, there were a lot of first-time home buyer tax credit ideas floating before Congress and most of them picked up, then subsequently twisted, by newspapers and bloggers. And, unfortunately, Google's job is to store information -- not determine whether or not it's accurate. If you're still seeing stories about a $15,000 tax credit, you know exactly what I mean.

In the end, Congress could only pass one "official" program and it's the one detailed herein.

There's a lot of misinformation out there on the Internet so, if nothing else, let Form 5405 can be your "official documentation".

Also, don't just take my word for it on tax issues. I am a loan officer and not an accountant. I can offer opinion and guidance, but paying a professional for expert advice is often the right way to go. If you don't have an accountant you trust, call or email me for a recommendation.