First Time Home Buyer Tax Credit FAQ

The first-time home buyer credit is an incentive that grants first-time home buyers an $8,000 credit upon the purchase of their new home. It went into effect in February 2009 as a part of President Obama's $787 billion American Recovery and Reinvestment Act.

Here are the details:

• You're only eligible for this credit if you buy between January 1, 2009 and November 30, 2009.
• You're defined as a first-time home buyer if you haven't owned a home in three years.
• Your new home must be your primary residence.
• If you plan to sell the home in less than three years, you'll have to pay the money back.

Your modified adjusted gross income (MAGI) is the amount that the IRS uses to determine how much tax you'll need to pay. It's equal to your total yearly income minus any deductions. The IRS will calculate your tax credit amount based on your MAGI and whether you file as an individual or jointly:

• Single taxpayers with a MAGI between $75,000 and $95,000 are eligible for a partial credit.
• Single taxpayers with a MAGI greater than $95,000 are ineligible for the credit.
• Unmarried partners who purchase a home together can split the credit, or one partner can claim the entire credit.
• Married couples who file separately with a MAGI of less than $75,000 will be eligible for a maximum credit of $4,000 each.
• Filing jointly with a MAGI between $150,000 and $170,000 means you're eligible for a reduced credit.

Any home that will be your primary residence for at least three years will qualify for the credit -- including single-family detached homes, attached homes like townhouses and condominiums, manufactured homes or mobile homes, and houseboats.

You've got a couple options:

• Claim it for 2008: Even if you already turned in your 2008 tax returns, you can file a 1040X amendment form and claim the credit after you purchase your new home this year.
• Claim it for 2009: Buy your home before December 1, 2009 and claim the credit using the 5405 form on your 2009 tax return.

The amount of the tax credit you're eligible to receive decreases as your MAGI increases. The IRS will use your MAGI for the year that you choose to file for the credit to determine the size of your refund. If you already filed your taxes for 2008 and expect to earn a higher taxable income in 2009, then it might make sense to file an amendment for 2008 to receive the maximum amount.

On the flip side, if plan to buy your first home this year but expect to earn less, then you should wait and claim the credit on your 2009 returns. A tax advisor will be able to help you decide which time is best for you.

The 2008 $7,500 credit was an interest-free loan to be repaid over the course of 15 years. Fortunately, you don't have to pay back the new 2009 $8,000 credit -- it's cash in your pocket as long as you live in your new home for at least three years. Otherwise, you'll have to pay it back.

If you bought a home between April 8, 2008 and December 31, 2008, you're still eligible for the $7,500 credit -- but you'll have to pay it back.

Yes. You can file an amended 2008 tax return with a 1040X form to claim the extra $500. However, you must wait until after you receive your initial refund amount or pay your tax bill to file the amendment. You may also want to talk with a tax advisor to make sure you file this form correctly.

No. Unfortunately, only those folks who buy between January 1, 2009 and November 30, 2009 are eligible. However, you're still qualified for the $7,500 tax credit if you bought between April 8, 2008 and December 31, 2008.

If you're planning on using an FHA loan, then you may be able to use the credit as part of your down payment. However, folks using conventional loans can't claim the credit until after their purchase.

Here's some more resources on the credit from the recent news and Redfin forums:

• The National Association of Home Builders gives a great overview of the credit with a detailed FAQ section. Also, check out their informative video explaining the credit.
• The IRS Tax Credit FAQ page.
• The National Association of Realtors Tax Credit FAQ.
• A recent Forbes article with details on how to claim the credit.
• Redfin forums posts in Seattle and Los Angeles and the Bay Area.