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WASHINGTON - Announced this week, is a new 2009 tax incentive for first time homebuyers.  The 2008, $7500 repayable credit is now increased to $8000 and the repayment feature is eliminated for 2009 purchasers.  Any home that is purchased for $80,000 or more qualifies for the full $8000 amount.  If the house costs less than $80,000, the credit will be 10% of the cost.  For an example, if an individual purchased a home for $75,000, the credit would be $7500.  It is credit available for the purchase of a principal residence on or after January 1, 2009 and must close before December 1, 2009.

Only first-time homebuyers are eligible. A person is considered a first-time buyer if he/she has not had any ownership interest in a home in the three years previous to the day of the 2009 purchase.

Every dollar of a tax credit directly reduces income taxes by a dollar.  Credits are claimed on an individual’s income tax return.  First, a qualified purchaser would figure out all income items and exemptions and make all the calculations required to figure out all his/her total tax due.  Then once the total tax owed has been computed, tax credits are applied to reduce the total tax bill.  So, if before taking any credits on a tax return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 if the tax due. ($9,500 - $8000 = $1500)

 If a purchaser is eligible for an $8000 credit but their entire income tax liability for the year is only $6000, the tax credit is what’s called “refundable” credit.  So if the eligible purchaser’s total tax liability was $6000, the IRS would send the purchaser a check for $2000.  The refundable amount is the difference between $8000 credit amount and the amount of tax liability. ($8,000- $6,000 = $2,000) Most taxpayers determine their tax liability by referring to tables that the IRS prepares each year.

Most income tax software programs are equipped to determine how withholding affects tax credit and refunds.

There is an income restriction based on the tax filing status the purchaser claims when filing their income tax return. Individuals filing Form 1040 as Single (or Head of Household) are eligible for the credit if their income is no more than $75,000.  Married couples who file a Joint return may have income of no more than $150,000. 

If you were "on the fence" about making a home purchase this year, this is an incredible incentive to make the move.  You can receive your very own stimulus package!  Free money, what are you waiting for? 

Sourced & written by: Laura Klencheski