First Time Home Buyer Tax Credit: How to get it before it's gone

There has been a lot of buzz lately surrounding the Federal Housing Tax Credit of $8,000 for first time home buyers. With home sales trending up on a unit basis, it looks like this credit has had a positive effect on stimulating the real estate industry and making early strides toward economic recovery. Sound too good to be true? It's not. The offer is real...but it doesn't last forever.

After December 1, 2009 the credit will go away, so if you close on your home on December 2 or after, you will not be able to utilize this home buying incentive. Since the Fall season is upon us and the December deadline is quickly approaching, we thought it would be helpful to provide a refresher on how to qualify and take advantage of this great program before it's too late. We also recommend, as always, with any changes that affect your financial situation, to consult a tax or real estate professional on these matters.

The Federal Housing Tax Credit site (http://www.federalhousingtaxcredit.com/2009/faq.php) has a ton of resources and some FAQs to help with some of your inquiries. Below is a sample of some of the basics, so feel free to peruse their site for the complete overview and additional information. Happy house hunting!

First Time Buyer Tax Credit 101:

Who is eligible to claim the tax credit? First-time home buyers purchasing any kind of home new or resale are eligible for the tax credit. To qualify for the tax credit, a home 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.

What is the definition of a first-time home buyer? The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. However, unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

How is the amount of the tax credit determined? The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $8,000.

Are there any income limits for claiming the tax credit? Yes. The income limit for single taxpayers is $75,000; the limit is $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI – defined below) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, 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 within these amounts.

How do I claim the tax credit? Participating in the tax credit program is easy. You 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 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).

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