What is this new home buyer tax credit all about?

Like me, you might be confused on the new tax credit passed recently. A credit of up to $8,000 for qualified first-time home buyers purchasing a principal residence between January 1, 2009 and December 1, 2009 has been made available under the American Recovery and Reinvestment Act of 2009. The National Association of REALTORS states the home buyer tax provisions included in the approved bill could stimulate up to 300,000 additional home sales. The association also thinks this credit should help stabilize home values and even help some homeowners from facing foreclosure. While I am not sure about either of the two statements, I am optimistic that the credit will be enough to motivate some buyers who have long been sitting on the fence which should help unload some of the housing inventory and stabilize prices.  Personally, I think that happens at least another year from now.

Here are some answers to questions you may have:

So, who is eligible?

First-time home buyers purchasing any kind of home are eligible for the tax credit. To qualify for the credit the 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.

Facts:

• The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
• According to the IRS website “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 MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts”.
• This tax credit does not have to be repaid and thus is different that the previous “credit” of up to $7500.00 which was essentially an interest-free loan. This tax incentive is a true tax credit.
• Home buyers must occupy the home as principal residence for at least three years or they may have to repay the credit amount. Certain exceptions apply.
• Claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on Line 69 of their 1040 income tax return.
• Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes and houseboats.
• 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.
• Newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.