One of the most exciting provisions of the Housing and Economic Recovery Act of 2008 was the First-Time Homebuyer Tax Credit. The credit was expanded as part of the most recent economic stimulus bill (The American Recovery and Reinvestment Act of 2009). The credit is designed to encourage first time home buyers to go ahead and make the leap to purchase their first homes.

Combine this tax credit with the fact that home prices and interest rates are at historical lows, and it is indeed an ideal time for many first-time homebuyers to purchase a home!

A first time home buyer is defined as someone who has not owned a home in the last three years

Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit

You cannot purchase the home from a related party like a spouse, direct ancestor, or direct lineal descendent(child or grandchild); however, you can still qualify for the credit if you purchase a property from siblings, nephews,nieces, and others

If you are married, both spouses must be first-time home buyers

If more than one unmarried individual is buying the property, the credit can be split up among all the individuals who qualify. However, the total credit taken cannot exceed $7,500 for homes purchased in 2008 and $8,000 for homes purchased in 2009

The credit amounts to 10% of the purchase price of the home not to exceed $7,500

The tax credit works like an interest free loan and must be repaid over a 15 year period

The credit amounts to 10% of the purchase price of the home not to exceed $8,000

The tax credit does not need to be paid back if you continue living in the home as your primary residence for three years without selling it

A tax credit is a special provision that reduces income tax liability on a dollar for dollar basis. When filing a tax return,you must include income items, deduction items and the number of exemptions, among other things, to figure your total tax liability. For example, if your total tax liability for the year is $8,000, and you qualify for the full $8,000 tax credit, this credit would wipe out all of the tax due. If your employer already deducted the $8,000 from your pay checks throughout the year, you would receive a tax refund of $8,000. If you owe less than $8,000 in taxes for the year, you are still eligible for the full $8,000 credit when you file your tax returns. In that case, the IRS will write you a check for the difference between $8,000 and your actual tax bill.

For more information about the first-time home buyer tax credit or other recent updates to the mortgage and real estate markets, just give me a call. I would be happy to assist you with your mortgage in the purchase of your new home!