2.        What is the definition of First Time Home Buyer?

The law defines ‘First Time Home Buyer’ as a buyer who has not owned a principal residence in the 3 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 3 years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time homebuyer 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 or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

3.        How is the amount of the tax credit determined?

The tax credit is equal to 10% of the purchase price, up to a maximum of $8,000.

4.        Are there income limits for claiming the tax credit?

The tax credit is reduced for buyers with a modified adjusted gross income (MAGI) of

5.        What is “Modified Adjusted Gross Income”?

Modified Adjusted Gross Income (MAGI) is defined by the IRS. To find it a taxpayer must first determine Adjusted Gross Income or “AGI.”  AGI is total income for a year minus deductions (known as “adjustments” or “above the line deductions.”), but before itemized deductions from Schedule ‘A’ or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income, including wages, salaries, interest income, dividends and capital gains.

To determine Modified Adjusted Gross Income (MAGI), add to AGI certain amounts such as foreign income, foreign housing deductions, student loan deductions, IRA contribution deductions and deductions for higher education costs.

6.        If my Modified Adjusted Gross Income (MAGI) is above the limit, do I qualify for any tax credit?

Possibly. It depends on your income. Partial credits of less than $8,000 are available for some taxpayers whose MAGI exceeds the phaseout limits.

7.        Can you give an example of how the partial tax credit is determined?

Assume that a married couple has a MAGI of $160,000. The applicable phaseout to qualify for the tax credit is $150,000 and the couple is $10,000 over this amount. Dividing $10,000 by $20,0000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Here’s another example: assume that an individual home buyer has a MAGI of $80,000. The buyers income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a tax credit of $2,800.

8.        How is this First Time Homebuyer Tax Credit different from the tax credit enacted by Congress in July, 2008?

The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous ‘credit’ was essentially an interest free loan.

10.   What types of homes qualify for the tax credit?

Any home that will be used as a principal residence will qualify for the tax credit. This includes single family detatched homes, attached homes like townhomes and condominiums, manufactured homes (also known as mobile homes), and houseboats.

11.   I read that the tax credit is “Refundable.” What does that mean?

This means that the homebuyer credit can be claimed even if the taxpayer has little or no tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even the entire amount of the refundable tax credit.

For example, if a qualified homebuyer expected, notwithstanding the tax credit, federal tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15^th.  Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).

12.   I purchased my home in early 2009 and have already filed to receive the $7,500 tax credit on my 2008 tax return. How can I claim the 2009 tax credit instead?

Home buyers in this situation may file an amended 2008 return using Form 1040X. You should consult with a tax advisor to insure that you file this return properly.

13.   Instead of buying a new home from a home builder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?

Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed for the home owner is treated by the tax code as having been ‘purchased’ on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 1, 2009.\

In contrast, for newly constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.

Yes. The tax credit can be combined with the MRB home buyers program. Note that first time home buyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

15.   I live in the

No.  You can claim only one.

16.   I am not a

Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a principal residence in the past three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of ‘nonresident alien’ in IRS publication 519.

17.   Is a tax credit the same as a tax deduction?

No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS. A deduction is subtracted from the amount of income that is taxed. Using the same example, assume that the taxpayer is in the 15% tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, their tax liability would be reduced by $1200 (15% of $8,000), or lowered from $8,000 to $6800.

18.   I bought a home in 2008. Do I qualify for this credit?

No, but if you purchased your first home between April 9, 2008 and January 1, 2009 you may qualify for a different tax credit.

19.   Is there any way for a homebuyer to access the money allocable to the credit sooner than waiting to file their 2009 tax return?

Yes. Prospective homebuyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will allow the homebuyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment.

Buyers should reduce their withholding amount on their W4 via their employer or through their quarterly estimated tax payment. IRS publication 919 contains rules and guidelines for income tax withholding. Prospective homebuyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax, interest and possible penalties.

Further, rule changes made as part of the economic stimulus legislation allow home buyers to claim the tax credit and participate in a program financed by tax exempt bonds. Some state housing finance agencies, such as the Missouri Housing Development Commission and the

20.   If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 return?

Yes. The law allows taxpayers to elect to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 instead of 2009). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether their income limit will reduce their credit amount.

Taxpayers buying a home who wish to claim it on their 2008 return, but who have already submitted their 2008 return to the IRS may file an amended return claiming the tax credit. You should consult with a tax professional to determine how to arrange this.

21.   For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit is the largest?

Yes. If the applicable income phase-out would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.