Today’s FAQS about the First-Time Home Buyers Credit

Posted May 11th, 2012
by Elizabeth Adams (no comments)


The first-time home buyer credit was a part of the American Recovery and Reinvestment Act of 2009, which was also known as the Stimulus and The Recovery Act. It allowed first-time home buyers to take a considerable credit when purchasing a primary residence. As with many other tax credits, there is a great deal of confusion about this one. For example, many people are unaware that the credit has to be repaid. Indeed, it must be repaid in equal installments over 15 years. It is essentially an interest-free, 15-year loan. Although the credit no longer applies to today’s first-time home buyers, it is still relevant for those who claimed the credit previously or have yet to. According to the IRS, if you bought your home in 2008, 2009, or 2010, you may still be eligible to claim the credit. This credit confused many people because many home buyers are unaware that the credit has to be repaid. This article will summarize the act as well as answer important questions about repayment in order to alleviate some of the confusion surrounding the credit. Frequently asked questions about the first-time home-buyers credit are highlighted below.

When was it Enacted?

The American Recovery and Reinvestment Act of 2009 was officially signed into law by President Obama on February 17, 2009.

 

What is the Definition of a First-Time Home Buyer?

To be considered a first-time home buyer under the terms of this credit, you must not have owned your primary residence for at least three years leading up to your new purchase. In other words, it doesn’t literally have to be your first time buying a home. You just can’t have owned and lived in a house for at least three years prior to buying a qualifying residence.

 

Who is Eligible to Claim the Tax Credit?

To be eligible for the first-time home-buyers credit, you must be a U.S. citizen. As mentioned above, you can’t have owned or lived in a primary residence in the three years leading up to the purchase of your new home. If you are married, neither you nor your wife or husband may have owned or lived in a residence that was used as your primary place to live for the three years leading up to the purchase of your new home. Income limits also apply to this credit, so not all first-time home buyers will qualify for it.

 

What if You’re Not a U.S. Citizen?

If you aren’t a U.S. citizen, you are not eligible for the first-time home buyer credit. The language regarding the credit specifically states that people must be citizens of the United States in order to qualify.

 

How is the Amount of the Credit Determined?

The total amount of the credit that you will receive will be equal to 10 percent of the purchase price of the home that you are buying. There is a $7,500 limit for homes purchased in 2008 and an $8,000 limit for homes purchased in 2009 or 2010. Homes that cost $75,000 or more and were purchased in 2008 will qualify for the full credit; homes that cost $80,000 or more and were purchased in 2009 or 2010 will qualify for the full credit as well.

 

What Kinds of Homes Qualify?

In order to qualify for the credit, the home that you are buying needs to be used as your primary residence. This specification is made to keep investors from raking in a bunch of refundable credits. Single-family homes, mobile homes and manufactured homes all qualify. However, vacation homes and rental properties do not. Basically, if you’re not going to be living in the home that you’re buying the majority of the time, it doesn’t qualify.

 

Are there Income Limits?

Yes. There are income limits in effect for the first-time home buyer credit. Single filers who earn between $75,000 and $95,000 will be phased out of qualifying for the credit. Similarly, married couples who earn between $150,000 and $170,000 will be phased out as well. Those figures refer to modified adjusted gross incomes, or MAGIs, which are discussed below.

 

How does the IRS Define Modified Adjusted Gross Income?

Modified adjusted gross income, or MAGI, is calculated by taking your AGI and adding back in things like higher-education deductions, IRA contribution deductions, student loan deductions and foreign income. Your adjusted gross income is calculated by subtracting tax deductions from your gross income.

 

How does the First-Time Home Buyer Credit Differ from a Tax Deduction?

A tax deduction is something that is used to reduce the total amount of your income that is subject to tax. The first-time home buyer credit is a completely different animal. It is not a deduction; it is a credit, which means that it is refundable. A tax deduction does not reduce the total amount of tax that you owe. It simply adjusts your taxable income so that you owe fewer taxes. Some tax credits are not refundable, which means that they can only be used to reduce your total tax liability. A refundable credit, however, can result in a tax refund at filing time. The first-time home buyer credit falls into that category.

 

How can I Access the Money from the Credit?

Although the first-time home buyer credit is like an interest-free loan, the money isn’t handed right over to you when you buy a qualifying home. Instead, it is given as a credit when you file your taxes. If your tax burden is minimal, the extra amount of the credit will be given to you as a refund. In that case, you would receive a check or a direct deposit from the IRS. Keep in mind that it’s not “free money.” It has to be repaid over 15 years.

 

Can I Access My Money before Filing My Return?

No. It is not possible to get an “advance” on the first-time home buyer credit. It may be possible to work something out with your lender, if you can prove that you are going to receive the credit, but there is otherwise no way to get the money ahead of time. You must wait until your return is processed and approved.

Categories: Advice

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