First Time Home Buyer Tax Credit is part of the American Recovery and Tax Act of 2009 and has authorized up to $8,000 tax credit for qualified first time home buyer when a principal residence is purchased between January 1, 2009 and November 30, 2009. The following is basic information and a qualified legal professional or tax accountant should be consulted.

A first time home buyer is anyone who has not owned a principal residence during the three years prior to purchasing their home, and if married the test of time law applies to both spouses. The tax credit that applies to the qualified home buyer is up to $8,000 or ten percent of the home purchase, whichever is less. The qualified buyer must not make more that $75,000 if single or $150,000 if married for the full benefit or $95,000 (single) or $170,000 (married) modified adjusted gross income for a partial benefit. See IRS form 5405 for details. Claim the tax credit after figuring the amount on IRS form 5405 and then claim this amount on line 69 of form 1040 income tax return. Be sure you qualify under both the income limits and first time home buyer test and the sale must legally close prior to December 1, 2009.

The qualifying home definition is the same used for the $250,000/$500,000 capital gains tax exclusion for principal residence. Building a home that is on a lot that you had already owned may also qualify (It must be completed by November 30, 2009. The tax credit is given to the home buyer even if no taxes are paid. There is an additional opportunity for a home buyer to apply the tax credit to their 2008 taxes and file an admended return and receive the money quicker. Tax professional should be consulted.

HUD Secretary Shaun Donovan, on May 12, 2009, said that the government is looking into ways to allow bridge loans for FHA insured loans so that the tax credit could be borrowed at closing and used as a down payment. The June update to this plan said that the tax credit can not be used as a bridge loan for the minimum 3.5% FHA down payment.

HUD did say that FHA approved lenders have the go ahead to develop a bridge loan product that will enable first time buyers to use that tax credit up front. Under the approval FHA approved lenders can develop a bridge loan which can be used for homebuyers to help cover their closing cost, buy down their interest rate, or in order to put down more than the 3.5% minimum down payment.

Many buyers will find it more advantages to negotiate the closing cost and the interest rate buydown from the seller and pay down the loan after they receive the tax credit rather than going through the time and expense of getting a bridge loan for this. Buyers still have the option to apply for their tax credit this year by filing an admended 2008 tax return after they have bought their house.

 If the tax credit is needed for a down payment talk to your mortgage broker and see if there are other options available for your situation. The tax credit is only available for a qualified real estate purchase by November 30, 2009, and for many areas of the country including Western North Carolina now is a great time to buy real estate.

 

David Craven
Beverly-Hanks and Associates
DCraven@Beverly-Hanks.Com
www.WaynesvilleHomes-ForSale.Com
www.HomesForNC.Com