More Stimulus: The New Homebuyer Tax Credit

When George Washington threw the dollar across the Rappahannock River, he didn't realize he was establishing a precedent for government spending.

-Harold Coffin, "The San Francisco Examiner"


Quick Summary of the First-Time Homebuyer Credit

For 2008: up to $7,500, the credit is paid back over 15 years.

For Jan - Nov 2009: up to $8,000, the credit does not need to be paid back.

For Dec 2009 - April 2010: up to $8,000 for first-time buyers, the credit does not need to be paid back.

For Nov 7, 2009 - April 2010: up to $6,500 for "long-term residents" buying a new home, the credit does not need to be paid back.

Until April 30, 2011: homebuyer credit continues to be available for qualified members of the U.S. uniformed services.

Dollar Amounts of the Homebuyer Tax Credit

The tax credit is worth 10% of the purchase price of the home. For 2008, the maximum credit is $7,500 ($3,750 for married couples filing separate returns). The credit is also limited to the same $7,500 maximum for unmarried persons who purchase a residence together.

For 2009 and 2010, the maximum credit is $8,000 (or $4,000 for married couples filing separately).

Long-term residents purchasing a new home have a lower maximum credit of $6,500, or $3,250 for married couples filing separate returns.

Limit based on Maximum Purchase Price

No tax credit is allowed if the purchase price of the home exceeds $800,000. There's no phase-out or gradual reduction of the credit.

Qualifying as a First-Time Homebuyer

For the purpose of this tax credit, a first-time homebuyer is defined as someone who has not owned a primary residence in the three-year period ending on the date of purchasing the home. Married couples are considered first-time buyers if neither spouse has owned a residence in the previous three years.

Qualifying as a Long-Term Resident Homebuyer

People who already own a home can qualify for the tax credit if they buy another home. The qualify, individuals needs to have owned and lived in their residence for at least five consecutive years in the eight-year period that ends on the purchase date of the new property.

Limited Time Period for Purchasing a Residence

The credit has a very limited life-span. Individuals will need to purchase a residence after April 9, 2008, and before May 1, 2010. Qualified service-members must purchase a residence before May 1, 2011.

Income Phase-out Range

The credit is phased out for individuals with modified adjusted gross income between $75,000 and $95,000. For married couples filing a joint return, the phase out range is $150,000 to $170,000. Effective Nov 6, 2009, the phase out ranges start at $125,000, or $225,000 for married couples.

Modified AGI for the First-Time Homebuyer Credit

To determine if the tax credit is reduced or eliminated by the income phase-out range, individuals will need to determine their modified adjusted gross income.(Excerpted from About.com)

There's more. (Isn't there always?) The IRS announcement of the expanded credit can be found here.

Form 5405, the tax form to claim the first-time homebuyer credit can be found here.