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BUYING A HOUSE NOW = $7500 $8000**
**NEW Rules and restrictions apply.  Please see details below.  First Time Homebuyers that purchased a home between April 9, 2008 and January 1, 2009 still qualify for the $7500 tax credit.

Right now the Federal Housing Tax Credit stipulates that if you follow some basic rules on a home purchase between now and the specified deadline, you can qualify for up to a $$7500 $8000 tax credit on your next tax return!  CREDIT EXPIRES JUNE 30 DECEMBER 1, 2009.

First-Time Home Buyer Tax Credit at a Glance

• The tax credit is available for first-time home buyers only.
• The maximum credit amount is $7,500  $8000.
• The credit is available for homes purchased on or after April 9, 2008 and before July 1, 2009  January 1, 2009 and before December 1, 2009.
• The tax credit is equal to 10% of the home purchase price up to a maximum of $8000.
• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
• The tax credit works like an interest-free loan and must be repaid over a 15-year period.  THIS TAX CREDIT DOES NOT HAVE TO BE REPAID!

JUMP TO Frequently Asked Questions

JUMP TO Law's Other Provisions

JUMP TO Home Buyer Federal Resources

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  Frequently Asked Questions About the First-Time Home Buyer Tax Credit

The Housing and Economic Recovery Act of 2008 authorizes a $8,000 tax credit for qualified first-time home buyers purchasing homes on or after January 1, 2009 and before December 1, 2009. The following questions and answers provide basic information about the tax credit. If you have more specific questions, we strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation.

1. Who is eligible to claim the tax credit? 
2. What is the definition of a first-time home buyer? 
3. How do I claim the tax credit? Do I need to complete a form or application? 
4. What types of homes will qualify for the tax credit? 
5. Instead of buying a new home from a home builder, I have hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit? 
6. What is "modified adjusted gross income"?
7. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit? 
8. Can you give me an example of how the partial tax credit is determined? 
9. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 returns.  How can I claim the new $8,000 tax credit instead?
10. Are there any income limits for claiming the tax credit? 
11. I heard that the tax credit is refundable. What does that mean? 
12. What is the difference between a tax credit and a tax deduction? 
13. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program? 
14. I live in the District of Columbia. Can I claim both the DC first-time home buyer credit and this new credit? 
15. I am not a U.S. citizen. Can I claim the tax credit? 
16. I bought a home in 2008.  Do I qualify for this credit? 
17. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008? 
18. How is the amount of the tax credit determined? 
19. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return? 
20. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest? 
21. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2008 tax return? 

 

1. Who is eligible to claim the tax credit?
   First time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.
   
   
2. What is the definition of a first-time home buyer?
   The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
   
   
3. How do I claim the tax credit? Do I need to complete a form or application?
   Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.
   
   
4. What types of homes will qualify for the tax credit?
   Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.
   
   
5. Instead of buying a new home from a home builder, I have hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
   Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.
   
   In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.
   
   
6. What is "modified adjusted gross income"?
   Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.
   
   To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.
   
   
7. If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
   Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.
   
   
8. Can you give me an example of how the partial tax credit is determined?
   Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.
   
   Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.
   
   Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.
   
   
9. I purchased a home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 returns.  How can I claim the new $8,000 tax credit instead?
   Home buyers in this situation may file an amended 2008 return with a 1040X form.  You should consult with a tax advisor to ensure you file this return properly.
   
   
10. Are there any income limits for claiming the tax credit?
    The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return.  The tax credit amount is reduced to zero for taxpayers with MAGIs of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts. 
    
    
11. I heard that the tax credit is refundable. What does that mean?
    The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.
    
    For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).
    
    
12. What is the difference between a tax credit and a tax deduction?
    A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives a $8,000 tax credit would owe nothing to the IRS.
    
    A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives a $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.
    
    
13. Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
    Yes. The tax credit can be combined with the MRB home buyer program.  Note that first time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.
    
    
14. I live in the District of Columbia. Can I claim both the DC first-time home buyer credit and this new credit?
    No. You can claim only one.
    
    
15. I am not a U.S. citizen. Can I claim the tax credit?
    Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.
    
    
16.  I bought a home in 2008.  Do I qualify for this credit?
    No, but if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for the $7,500 home buyer tax credit.  This credit is a 'refundable' credit also but functions more like an interest-free loan from the government and eventually requires repayment.  For more details on this tax credit, please visit www.federalhousingtaxcredit.com or read more below.
    
    Under the provisions of the $7,500 tax credit, home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.
    
    
17. How is this home buyer tax credit different from the tax credit that Congress enacted in July of 2008?
    The most significant difference in that this tax credit does not have to be repaid.  Because it had to be repaid, the previous "credit" was essentially an interest-free loan.  This tax incentive is a true tax credit.  However, under the new credit provisions, home buyers must still use the residence as a principal residence for at least three years or face recapture of the tax credit amount.  Certain exceptions apply.
    
    
18. How is the amount of the tax credit determined?
    The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $8,000.
    
    
19. If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
    Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.
    
    
    Taxpayers buying a home who wish to claim it on their 2008 tax return, but who have lready submitted their 2008 return to the IRS, may file an amended 2008 return claiming the tax credit.  You should consult with a tax professional to determine how to arrange this.
    
    
20. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
    Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.
    
    
21. Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?
    
    Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.
    
    Further, rule changes made as a part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax-exempt bonds.  Some state housing finance agencies, such as the Missouri Housing Development Commission, have introduced programs that provide short-term credit acceleration loans that may be used to fund a downpayment.  Prospective home buyers should inquire with their state housing finance agency to determine the availability of such a program in their community. 

 

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Home Buyer Resources

Buying a home can be complicated, but fortunately a lot of expert advice is available to help people navigate the experience. These online resources can help make the process smoother. 

Buying and Owning a Home Freddie Mac
Buying a Home Department of Housing and Urban Development
The Home Buying Process Federal Housing Administration
FHA Loans Federal Housing Administration
Homeownership Resources Fannie Mae
Home Loan Learning Center Mortgage Bankers Association
Move.com NAHB’s official new homes listing site
Home Loan Guaranty Services Dept. of Veterans Affairs
State and Local Home Buyer Assistance Programs
Housing Publications from the Federal Citizen Information Center Most in PDF format
Consumer Information from NAHB NAHB.org
Mortgage information from the Fed Federal Reserve Board
Home Financing Information from the FTC Federal Trade Commission

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The Law’s Other Provisions

In addition to the tax credit, the American Recovery and Reinvestment Act of 2009 has several other provisions that will benefit home buyers and the housing market.  The legislation:

• Will help home buyers in high-cost markets by extending the FHA, Fannie Mae and Freddie Mac loan limit of $729,750 through the end of 2009.
• Allows state housing finance agencies to help buyers at closing by advancing the credit as a loan using proceeds from tax-exempt bonds.
• Extends the tax code section 25C credit for energy-efficient home improvements through the end of 2010; increases the credit rate from 10 percent to 30 percent; raises the lifetime cap from $500 to $1500; expands the list of eligible improvements.
• For 2008 operations, expands the net operating loss carryback period from two years to five years for small businesses (businesses with average gross receipts of no more than $15 million over the previous three years.)
• Temporarily allows exchange of Low-Income Housing Tax Credit allocating authority for tax-exempt grants and appropriates $2 billion in HOME funding for affordable housing projects.
• Provides a "patch" for the Alternative Minimum Tax for tax year 2009.
• Increases bonus depreciation and section 179 small business expensing for business investment in 2009.
• Increases New Markets Tax Credit allocating authority for 2008 and 2009.
• Delays for one year - from 2011 to 2012 - the start of the three percent government contractor withholding requirement.

Federal Housing Administration Modernization
The maximum FHA-insured loan will be increased to 115 percent of an area’s median home price, up to a maximum of $625,500, with a minimum downpayment of 3.5 percent, up from 3.0 percent currently. The legislation will give the agency greater flexibility to respond to the needs of borrowers, enable more working families to become home owners, provide a viable alternative to the volatile subprime market and allow the FHA to play an important role in stabilizing the mortgage markets. Read more...

Foreclosure Relief
The legislation will allow the Federal Housing Administration to guarantee up to $300 billion in refinance mortgages where current mortgage holders agree to accept partial payment so the outstanding principal on the new loan is more affordable for borrowers. This could help as many as 400,000 struggling home owners to stay in their homes, according to Congressional Budget Office estimates. Read more...

Mortgage Revenue Bonds
States will be provided new authority to issue an additional $11 billion in bonds to be used to refinance subprime loans, mortgages for first-time home buyers and multifamily rental housing. Expanding this program will help strapped borrowers seeking to refinance their home loans.

Government Sponsored Enterprises
The legislation will reform the regulation of housing government sponsored enterprises (GSEs) Fannie Mae, Freddie Mac and the Federal Home Loan Banks by establishing a strong, independent regulator that will have enhanced authority to raise capital standards and take corrective actions if the GSEs are undercapitalized. It will also permanently increase the maximum loan limit to $625,500 for Fannie Mae and Freddie Mac. This will help buyers seeking homes in high-priced markets such as California and the Northeast.

The bill also creates a new affordable housing fund to be financed by the GSEs. The fund will be used to finance the construction, maintenance and preservation of affordable rental housing projects nationwide.

To boost investor confidence in Fannie Mae and Freddie Mac, the bill includes a Treasury proposal that will temporarily expand the government’s line of credit to Fannie and Freddie and permit the Treasury to purchase an equity stake in the companies through the end of 2009.

Low Income Housing Tax Credit (LIHTC)
The legislation makes significant enhancements to the LIHTC and tax-exempt housing bond programs, which would increase their effectiveness. The LIHTC plays a key role in the construction and rehabilitation of affordable residences. Enhancing this program will enable builders and developers to expand the supply of much-needed affordable rental housing.

Property Taxes
The legislation will provide temporary tax relief for home owners who do not itemize their deductions. For tax year 2008, taxpayers who do not itemize their deductions but pay property taxes will receive a $500 additional standard deduction ($1,000 for married couples). This provision will particularly benefit home owners who have paid off their mortgages.

Community Development Block Grants
The legislation provides $3.9 billion in grants to state and local governments for the purchase of foreclosed homes and the rehabilitation or redevelopment of residential property.