Understanding the First-Time Home Buyer Tax Credit

The first-time home buyer tax credit was stipulated in the Worker, Homeownership and Business Assistance Act of 2009. It has been extended to maintain its effect through the end of 2010, and is an effective incentive for many new buyers of homes. If you're planning to buy your first home during the time period in which the first-time home buyer tax credit remains effective, know what you'll need to do in order to take advantage of this offer. The tax credit will help to defer the costs of the taxes that you'll have to pay on the home.

Eligibility

Anyone who is purchasing a home for the first time is eligible, whether the home is new or part of a resale. Those who are classified as dependents or who are under 18 years old are not eligible for the tax credit. Additionally, the terms of the sale must be completed and agreed upon within the time constraints of the first-time home buyer tax credit offer as well.

Amount of Credit

The amount of tax credit that you'll receive as a part of this offer is equal to 10% of the purchase price of the home, with a maximum credit available of $8,000.

Income Limits

If your income exceeds a certain level, you will be ineligible for the full tax credit. This income level is at or above $125,000 per year for single home buyers, and $225,000 per year for married or joint home buyers. The tax credit will be reduced if your income exceeds that level.

The partial tax credit will be determined by your modified gross income level. This value, determined by the IRS, takes into account your total gross income as well as other expenditures and taxes that you'll owe on that income. Generally, the higher that your total modified gross income is, the less money that you'll receive as part of the first time home buyer tax credit.

Claiming the Tax Credit

In order to claim the tax credit, you'll have to fill out a special supplement to the standard IRS income tax return. This supplement is called IRS Form 5405, and will require information about your household income and modified gross income, as well as the home that you've purchased during that tax period.

Homes that Qualify

Not all homes will qualify for the tax credit. The home that you purchase must be used as a primary point of residence. Additionally, the purchase price of the home must be less than $800,000. You may not claim the tax credit for homes purchased from a family member or other blood relation.

For additional information about the first-time home buyer tax credit program, including information on how the credit will affect your individual purchase, contact the IRS or consult with a real estate broker who is helping with your purchase or sale. Claiming the tax credit can save you a good amount of money on this major expenditure.