tax credit in the 2009 stimulus package

A first time homebuyer tax credit has been signed into law as part of the Stimulus Package that was created by President Obama. There are many questions as well as many misconceptions that are floating around regarding this legislation. In this month's article I am going to try to clear up some of those questions.

The tax credit in this stimulus plan is for first-time homebuyers only. The Bill had several changes throughout the negotiation process in Congress, some of which included all home buyers. In the final Bill the tax credit applies only to first-time home Buyers. You may ask who qualifies as a first-time homebuyer and the answer is any family unit who has not owned a home as a Principle Residence within the past three years.

The tax credit in the 2009 stimulus package does not have to be repaid. This differs from the first-time home buyer tax credit that was in place in late 2008. In the 2008 plan, the credit was an interest free loan and it had to be repaid within 15 years. In both plans, the home buyer must keep this home as their primary residence for at least 3 years or they may face recapture of the tax credit amount.

In the 2009 tax credit, the amount of credit that you receive is equal to 10% of the purchase price with a maximum credit amount of $8,000. There is a distinct difference between tax credits versus tax deductions. In a tax credit, the credit is a dollar for dollar amount that is paid against the taxes that are owed. A tax deduction is a reduction in the amount of gross income by that amount. Basically, the credit is post tax and the deduction is pretax. A bonus in this year's tax credit is that the credit is refundable. Meaning, if you do not owe taxes larger than the amount of credit that you are receiving, then you will receive a check for the difference.

Another common question is the time frame in which you must purchase a home to qualify for this tax credit. You must purchase a principle residence between January 1, 2009 and December 1, 2009. If you purchased a home in 2008, then you will be subject to the laws which were in place at that time.

Is there a maximum amount of income that you can make to qualify for this tax credit? The answer is yes. If you are a single tax payer and your Modified Adjusted Gross Income is less than $75,000 then you qualify. If you are married and file jointly then the total Modified Adjusted Gross Income must be less than $150,000. There are some provisions for partial tax credit if you make more than the amounts listed above.

I hope that you found this extremely brief synopsis of the 2009 first-time homebuyer tax credit helpful. If you would like to research more information on your own, one of the best websites that I have found to help answer questions regarding this tax credit is http://www.federalhousingtaxcredit.com/. This site has been created by the National Association of Home Builders. Contact your tax advisor for specific advice on how this credit may apply to you.

This information is for general guidance only. The information in this article does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers.