Welcome to $8,000 Tax Credit

Q) Who is Eligible?
A) First time homebuyers (this includes anyone who have not owned a home in the previous 3 years)

Q) How does a tax credit work?
A) Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual's income tax return. A qualified purchaser figures out their total tax owed and then the tax credits are applied to reduce the total tax bill. (If a person has a total tax liability of $9,500, an $8,000 credit would wipe out all but $1,500 of the tax due)

Q) What happens if the purchaser is eligible for an $8,000 credit but their entire income tax liability for the year is only $6,000?
A) If the total tax liability was $6,000, the IRS would send the purchaser a check for $2,000. The refundable amount is the difference between the $8,000 credit amount and the amount of tax liability, determined by tables that the IRS prepares each year.

Q) Is there an income restriction?
A) Yes. The income restriction is based on the tax filing status the purchaser claims. Individuals filing as Single (or Head of Household) are eligible for the credit if their income is no more than $75,000. Married couples who file a joint return may have income of no more than $150,000

Q) Do individuals with higher incomes lose all the benefit of the credit?
A) Not always. The credit phases out between $75,000 - $95,000 for singles and $150,000 - $170,000 for married couples filing jointly. The closer a buyer comes to the maximum phase-out amount, the smaller the credit will be. The law provides a formula to gradually withdraw the credit.

Q) How is "Prinicipal Residence" defined?
A) Generally, a principal residence is where an individual spends most of his/her time (generally defined as more than 50%). Also defined as owner-occupied housing, it includes single-family detached housing, condos, townhouses, or any similar type of new or existing dwelling.

Q) Do I have to repay the 2009 tax credit?
A) No. There is no repayment.

Q) How do I apply for the credit?
A) All eligible purchasers simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form 5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov

Q) Can I use it as part of my down payment?
A) No. Pre-funding for closing costs would require cumbersome processes that would, in effect, bring the IRS into the purchase and settlement phase of the transaction.

Q) Is there a way to get any cash flow benefits before I file my tax return?
A) Yes. Any first time homebuyers who are eligible for all or part of the credit can modify their income tax withholding (through their employers) or adjust their quarterly estimated tax payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their employer. In many cases their withholding would decrease and their take-home pay would increase. Those who make estimated payments would make similar adjustments.

Q) What if I can't settle before December 1?
A) The credit is available for purchases before December 1, 2009. A home is considered as "purchases) when all events have occurred that transfer the title for the seller to the new purchaser.

Q) Do I have to wait until next year to get the credit?
A) Eligible homebuyers who make their purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15, 2009. Three filing options are available:
1) Claim the $8,000 credit on the 2008 return due on April 15
2) Extend the 2008 income tax filing until as late as October 15, 2009. (The taxpayer must file for the extension)
3) If you have already filed your 2008 return before the purchase of a home, file an amended 2008 tax return on Form 1040X. (Available at www.irs.gov)

Q) Will I ever have to repay the credit?
A) If you claim the credit but then sell the property within three years, you are required to pay back the full amount of any credit, including an refund you received from it. A few exceptions apply.

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	The $8,000 first time homebuyer tax credit is one of the 10 key provisions of the American Recovery and Reinvestment Act signed into law on February 17, 2009 and provides for the purchase of a principal residence on or after January 1, 2009 and before December 1, 2009. The credit does not require repayment. Below are some common Questions and Answers about this great credit. Q) Who is Eligible? A) First time homebuyers (this includes anyone who have not owned a home in the previous 3 years) *Q) How does a tax credit work?* A) Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual's income tax return. A qualified purchaser figures out their total tax owed and then the tax credits are applied to reduce the total tax bill. (If a person has a total tax liability of $9,500, an $8,000 credit would wipe out all but $1,500 of the tax due) *Q) What happens if the purchaser is eligible for an $8,000 credit but their entire income tax liability for the year is only $6,000?* A) If the total tax liability was $6,000, the IRS would send the purchaser a check for $2,000. The refundable amount is the difference between the $8,000 credit amount and the amount of tax liability, determined by tables that the IRS prepares each year. *Q) Is there an income restriction?* A) Yes. The income restriction is based on the tax filing status the purchaser claims. Individuals filing as Single (or Head of Household) are eligible for the credit if their income is no more than $75,000. Married couples who file a joint return may have income of no more than $150,000 *Q) Do individuals with higher incomes lose all the benefit of the credit?* A) Not always. The credit phases out between $75,000 - $95,000 for singles and $150,000 - $170,000 for married couples filing jointly. The closer a buyer comes to the maximum phase-out amount, the smaller the credit will be. The law provides a formula to gradually withdraw the credit. *Q) How is "Prinicipal Residence" defined?* A) Generally, a principal residence is where an individual spends most of his/her time (generally defined as more than 50%). Also defined as owner-occupied housing, it includes single-family detached housing, condos, townhouses, or any similar type of new or existing dwelling. *Q) Do I have to repay the 2009 tax credit?* A) No. There is no repayment. *Q) How do I apply for the credit?* A) All eligible purchasers simply claim the credit on their IRS Form 1040 tax return. The credit will be reflected on a new Form 5405 that will be attached to the 1040. Form 5405 can be found at www.irs.gov *Q) Can I use it as part of my down payment?* A) No. Pre-funding for closing costs would require cumbersome processes that would, in effect, bring the IRS into the purchase and settlement phase of the transaction. *Q) Is there a way to get any cash flow benefits before I file my tax return?* A) Yes. Any first time homebuyers who are eligible for all or part of the credit can modify their income tax withholding (through their employers) or adjust their quarterly estimated tax payments. Individuals subject to income tax withholding would get an IRS Form W-4 from their employer. In many cases their withholding would decrease and their take-home pay would increase. Those who make estimated payments would make similar adjustments. *Q) What if I can't settle before December 1?* A) The credit is available for purchases before December 1, 2009. A home is considered as "purchases) when all events have occurred that transfer the title for the seller to the new purchaser. Q) Do I have to wait until next year to get the credit? A) Eligible homebuyers who make their purchase between January 1, 2009 and December 1, 2009 can treat the purchase as if it had occurred on December 31, 2008. Thus, they can claim the credit on their 2008 tax return that is due on April 15, 2009. Three filing options are available: 1) Claim the $8,000 credit on the 2008 return due on April 15 2) Extend the 2008 income tax filing until as late as October 15, 2009. (The taxpayer must file for the extension) 3) If you have already filed your 2008 return before the purchase of a home, file an amended 2008 tax return on Form 1040X. (Available at www.irs.gov) Q) Will I ever have to repay the credit? A) If you claim the credit but then sell the property within three years, you are required to pay back the full amount of any credit, including an refund you received from it. A few exceptions apply. (NOTE: This information is for informational purposes and should not be construed as tax or legal advice. For specific advice on their own tax situation, consumers should always consult a qualified tax professional) For more information or details, please email me at rhatt@c21callfirst.com