The $8000 First Time Home Buyer Tax Credit Explained!

I have been talking to and hearing lots of people talk about this tax credit for new home buyers and one thing is clear to me - there is a lot of confusion. I think a lot of it stems from the media talking so much about the proposed plans for it that now that the final version of it is approved, the details are different.

Originally, the plan was talking about $15,000, but it was going to be difficult for many to qualify for the whole amount, but the final version is a $8000 credit that most should see in their bank account.

Let me interject that I am not a tax-guy and everything I am writing here is from my own research. So, if I am missing anything, please share it in the comments below.

Who is eligible for the tax credit

• First-time home-buyers (from what I understand buyers who haven’t owned a home in the last 3 years would also qualify as “first-time” buyers)
• Buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers could receive a partial credit.)

Rules to remember

• The purchase of the home must be made between Jan. 1, 2009 and Nov. 30, 2009.
• The buyers must live in the house for 3 years or more, or they will have to pay back the tax refund.
• The refund amount is $8000 or 10% of the home’s value - whichever one is less.

Tax rebate, refund, credit, deduction?

As Obama’s plan has developed, there have been lots of ideas tossed around from the Senate and the House, but let’s look at the final product. The examples below assume that you qualify for the homebuyer credit from the requirements above.

It is not a tax-deduction.

An example of a tax-deduction would be someone making $50,000 a year would only have to pay taxes on $42,000 ($50K-$8K=$42K). While that is nice, this is a whole lot better for individual taxpayers.

It is a tax credit.

Since it is a tax credit, it will show up a tax refund for most people. For example, if you paid $3000 in taxes this year and after doing your taxes found out that the IRS owed you a $500 refund, you would now get $8500 back.

From what I understand the only way you wouldn’t get at least $8000 back is if after doing your taxes you owed $1000 to the IRS, you would then get a refund check of $7000 ($8000-$1000).

What you need to do to get it

1. Buy a house before November 30th, 2009.
2. Claim it on your tax return.

According to CNN, there aren’t any special forms to fill out, or any other hoops to jump through to get it. While on a national level, I am not very excited about the excessive spending that our government has been partaking in, but I am planning on taking advantage of this deal. Have you already taken advantage of the homebuyer credit - or do you plan to?