How to Qualify for the New First Time Home Buyer Tax Credit

An $8,000 tax credit for first-time homebuyers is a step in the right direction toward revitalizing Florida’s housing market and stimulating the state’s economy, says Cynthia Shelton, 2009 president of the Florida Association of Realtors(R) (FAR).

“The new tax credit provides a great incentive for first-time homebuyers to enter the housing market and find the home of their dreams here in Florida,” Shelton says. “With plentiful affordable inventory offering a range of housing options, mortgage interest rates near historical lows and competitive pricing, the time is right for prospective homebuyers who have been sitting on the fence to take advantage of the homeownership opportunity available through the tax credit.”

The American Recovery and Reinvestment Act of 2009, signed by President Barack Obama last week, offers almost $79 billion in economic stimulus proposals, including provisions to help stabilize and rejuvenate the housing market such as: increasing the first-time homebuyer tax credit to $8,000 for those buying by Dec. 1, 2009, and eliminating the repayment requirement; reinstating higher limits for Federal Housing Administration (FHA), Fannie Mae and Freddie loans; and increased rural housing loans.

What do first-time homebuyers need to know to take advantage of the $8,000 tax credit? Here are a few of the rules that apply, at least according to the most recent analysis, though things could change as tax professionals continue to review the details. Consult your tax advisor if there are any questions about the $8,000 tax credit and how to use it.

— The tax credit is available for first-time buyers who purchase between Jan. 1 and Dec. 1, 2009. They can either claim the credit on this year’s return due April 15 or file for the credit in 2009.

— To qualify as a first-time homebuyer, the purchaser cannot have owned a home in at least three years before the date of purchase. However, ownership of a vacation home or rental home does not disqualify the buyer.

— The deduction is worth 10 percent of a home’s value up to $8,000, which means all homes worth more than $80,000 could qualify for the maximum amount.

— It’s a tax credit, not a deduction. That means the entire amount goes back to the first-time homebuyer unlike deductions, such as mortgage interest, that are subtracted from gross income before tax is calculated. If qualified for $8,000, the buyer gets $8,000, even if they would not owe that much in taxes.

— Buyers can claim a maximum credit of $8,000, or up to $4,000 for married individuals filing separately, according to the IRS. The credit phases out for married couples with adjusted gross income of $150,000 and for individual taxpayers with income above $75,000.

— The tax credit does not have to be paid back, providing the homebuyer keeps the property for at least 36 months and resides in the home.

Source: Florida Association of Realtors

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