The first-time home buyer tax credit of $7500 was enacted by Congress in 2008 with an aim of encouraging the purchase of homes by first-time buyers. The amount of credit set was designed to limit the number of homes being offered for sale. In 2009 this tax credit was increased to $8000 and a few improvements were made to the enactment. The current tax credit is relevant to principal residence purchases made on and after 1st January 2009 and before 1st December 2009. The term ‘principal residence’ refers to the home where the individual lives in most.
The revised 2009 tax credit has a provision that eliminates the repayment feature carried in the 2008 version. All homes bought for $80,000 or more are guaranteed the full credit amount of $8000. For properties bought below $80,000 the tax credit is calculated as 10% of the purchase cost, e.g. a $60,000 home qualifies for $6000 in credit. The basic working of a tax credit is to reduce an individual’s total tax liability by the tax credit amount; dollar for dollar. If for instance an individual’s total tax liabilities are determined to be $12,000 and he or she has a tax credit of $8000 the actual tax liability will be reduced to $4000 i.e. ($12000 - $8000 = $4000). In case a person has a total tax liability of an amount less than the $8000 he or she is eligible for refundable credit. Say for instance the tax liability is $5500 – the refundable credit amount will be ($8000 - $5500 = $2500). The $2500 amount will be paid to the person as a check from the IRS.
The tax credit has some limitations of its own. The first one has to do with income levels. Generally, persons who fill Form 1040 as Single/Head of Household are not eligible if their income exceeds $75000. However, there is a consideration for incomes in the range of $75000-$95000. In the case of couples (joint return) the phase out range starts at $150,000 to $170,000. Tax credits for persons working within the US are adjusted to comply with the AGI i.e. Adjusted Gross Income while for persons working abroad it is the MAGI or Modified Adjusted Gross Income that is used. The tax credit is only effective for properties within the US.
The 2009 first-time homebuyer tax credit could only be accessed by persons who had closed their home purchases before 6th November 2009. All purchases closed thereafter are eligible for the Extended Home Buyer Tax Credit. The steps in accessing this tax credit are as follows:
The 2009 first-time homebuyer tax credit could only be accessed by persons who had closed their home purchases before 6th November 2009. All purchases closed thereafter are eligible for the Extended Home Buyer Tax Credit. The steps in accessing this tax credit are as follows:
1Making Sure of the Home Purchase and Credit Application Dates
- Have the credit applied to your tax returns of 2009 whereby the filing must be done on or before 15th April 2010.
- File a 2009 amended return or...
- Have the credit applied to your tax returns of 2010 and consequently making the filing on or before 15th April 2011.
While tax credit claims for purchases made on or before 31st December 2009 can be included in the 2009 tax returns, purchases made
in 2010 come with the option to:
- Make credit claims on the returns of 2009 despite the transactions having been completed after 31st December 2009.
- File 2009 amended returns despite the purchases having been made after 15th April 2010 or
- Make credit claims on the tax returns of 2010.
