First-time buyer tax credit: Eligibility criteria and how to claim it

Barack Obama, the US President, has signed a law that allows a first-time homebuyer to claim a maximum of $8000 federal tax credit for purchasing a primary residence after April 8, 2008 and before December 1, 2009. Thus, a qualified purchaser is able to claim the federal homebuyer tax credit up to the mentioned limit even if he/she has no other tax liabilities.

First-time homebuyer tax credit: Limitations

The tax credit is worth 10% of the home purchase price. However, the credit is limited to a maximum of $8000 (or $4000 for married couples, who file return separately), if the property is purchased in 2009; the maximum limit is $7500 (or $3750 for married couples, who file return separately), for homes purchased in 2008.

Required eligibility criteria

You can take the advantage of first-time homebuyer tax credit if you’re able to satisfy the following eligibility criteria.

• First-time homebuyer: You should not have purchased a primary residence within the 3 years prior to buying the present property. Married couples are considered to be first-time homebuyers if neither of them has owned a residence within 3 years from the date of closing (of the present property). You may still qualify if you’ve owned a vacation home within the previous 3 years.

• Primary residence: The purchased home need to be the primary residence of the taxpayer. A primary residence can be defined as a home where a person lives most of the time. Apart from being a house, a primary residence can also be a co-operative apartment, a condominium, a mobile home or a house boat.

• Limited time period: The home needs to be purchased after April 8, 2008 and before December 1, 2009. The date of purchase is considered to be the day on which the property-title is transferred.

•Income limit: Your modified adjusted gross income need to be between $75,000 and $95,000. For a married couple filing a joint return, the income phase out range is $1, 50,000 to $1, 70,000.

How to claim the tax credit ?

If you’ve purchased your home in 2009 in the mentioned time period (as stated above), then you can claim the first-time homebuyer tax credit on either 2008 tax return or 2009 return. IRS (Internal Revenue Service) allows claiming a tax credit in 2008 federal tax return even if you’ve purchased your home after April 15, 2009. However, in this case, you’ll have to file an amended 2008 tax return or you’ll have to request in order to extend the time of your file return. You can qualify for higher tax credit (that is, $8000) and don’t have to repay it even if you take your 2009 tax credit on your 2008 return. However, a qualified buyer cannot claim the credit before the closing date.

When do you need to repay the homebuyer tax credit?

Though a taxpayer can claim the homebuyer tax credit if he/she has purchased a property in 2008 (after April 8, 2008), yet he/she needs to repay the amount in equal installments for a period of 15 years. It has to be repaid as an additional tax, starting with 2010 tax return. It means you need to repay $500 annually. You’ll have to repay it even if you sell the house within the 15-year time period.

In certain cases, you’ll have to repay your tax credit even if you’ve bought your primary residence in 2009 (within the mentioned time period). You’ll have to stay at your home for a minimum of 3 years in order to capitalize the credit as otherwise you’ll have to pay back the full amount to the government. However, there are certain exceptions in case of death or divorce.