By Timothy R. Schulte
CTW Features

Those who’ve dreamt about the American dream are probably thinking a lot more about how they can make that dream a reality.

With an $8,000 tax credit available to first-time buyers, folks of all walks of life are thinking more about cashing in on the funds available as part of the federal stimulus plan.

According to a July survey of RE/MAX Northern Illinois agents, 73 percent of the first-time buyers they worked with in the first half of 2009 were aware of the credit before walking in the agent’s door.

Whether you’re aware of the program or not, here are some of the finer points about claiming the credit.

Who is Eligible?

Any first-time homebuyer purchasing any type of home. The purchase must take place on or after Jan. 1., 2009 and before Dec. 1, 2009. Keep your eye on the news regarding any potential changes.

What is a “first-time homebuyer?”

Anyone who has not owned a principal residence during the three year period prior to the purchase. So, if you owned a home five years ago but do not now, you’d be eligible. However, for married couples, if one of you owned a home within the past three years and one did not, you would not be eligible.

How is the tax credit determined?

The credit is equal to 10 percent of the home’s purchase price to a maximum of $8,000.

Are there income limits for the credit?

Yes – the limit for single taxpayers is $75,000; $150,000 for married taxpayer filing a joint tax return. The tax credit is reduced for buyers with a modified adjusted gross income that exceeds those amounts. The phaseout range for the tax credit for the credit is equal to $20,000 – which means the credit is reduced to zero for taxpayers with a MAGI of $95,000 if signal, $170,000 is married. For more info on MAGI, see IRS Form 5405.

How is this credit different from the credit Congress enacted in July 2008?

The biggest difference is that this tax credit does not have to be repaid, as the previous “credit” was, in essence, an interest-free loan. The 2009 incentive is a true tax credit. Certain restrictions – such as the home must be used as principal residence for at least three years – do apply.

How do I claim the credit?

You claim the tax credit on your federal income tax return – no other applications or pre-approvals are necessary. Speak with your Realtor, tax preparer or a tax professional for details. Note: It must be a completed purchase.

What types of homes will qualify for the credit?

Any home that will be used as a principal residence will qualify for the credit. This includes single-family detached homes, attached homes (townhouses, condos, mobile homes, houseboats). Note: You cannot purchase a home from your parents, grandparents, children, grandchildren or spouse. Speak with a tax pro and see IRS Form 5405 for more info.

I’ve read that the credit is “refundable.” What does that mean?

This means the 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 of even all the amount of the refundable tax credit.

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 credit?

Homebuyers in this situation may file an amended 2008 tax return with a 1040X form. Consult with a tax pro to ensure you file this return correctly.

I’m building a home. Do I still qualify for the credit?

Yes. For purposes of the credit, a constructed home is deemed as “purchased” on the date the owner first occupies the house. The owner must occupy the home on or after Jan. 1, 2009 and before Dec. 1, 2009 to claim the credit.

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, and meets the other first-time buyer qualifications may claim the credit for a qualified home purchase. See IRS Publication 519 for definition on “nonresident alien.”

Is the credit the same as a tax deduction?

No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. A tax deduction is subtracted from the income that is taxed.

I bought a home in 2008; do I qualify for the credit?

No, but you may qualify for a different credit. Consult with your tax adviser for more info.

Is there a way to access the credit money sooner than waiting to file a 2009 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 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. See IRS Publication 919 for rules and guidelines for income tax withholding.

The Secretary of Housing and Urban Development has announced that HUD will allow "monetization" of the tax credit. What does that mean?

It means that HUD will allow buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 income taxes to receive a refund. These funds may be used for certain downpayment and closing cost expenses.
Under the guidelines announced by HUD, non-profits and FHA-approved lenders will be allowed to give home buyers short-term loans of up to $8,000.

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).

Source: www.federalhousingtaxcredit.com

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