What Is the First Time Home Buyer Tax Credit?

Introduction

As a part of the economic stimulus bill, President Obama signed into law an $8,000 first time home buyer tax credit, to help stimulate the housing market and to encourage potential homeowners to buy their first house. It also provided a smaller credit for people who already owned a house, provided that they lived in that house for more than 5 years out of the last 8 years. 

Under the first time home buyer tax credit program, qualified home buyers are eligible to receive a tax credit of 10 percent of the value of a house. However, this tax credit is capped at $8,000. This tax credit is applied directly to the taxes owed. For instance, if you owe $9,000 in taxes you can apply the $8,000 tax credit and reduce your payment to $1,000. If you usually qualify for refunds on your taxes then you can apply the tax credit, and add an additional $8,000 to your refund. Married couples filling separate tax returns can receive a tax credit of $4,000 personally.

The first time home buyer tax credit program is open to people with adjusted gross incomes of less than $95,000 and married couples with a joint income of less than $170,000. As their income levels rises, then tax credit applicable to them will drop until they hit then $95,000 mark, at which point they will no longer be eligible for the program.

The program originally only accommodated first time home buyers. The program defines such people as people who have not owned a primary residence for the past 3 years prior to the purchase. In 2009, the first time buyer tax credit program expanded its qualifications for applicants to include repeat home buyers as well. However, the program will only accept main homes for tax credit. Main homes are defined as any home which will be used as the principal residence and includes attached homes like condominiums and townhouses, single family detached homes, mobile homes and house boats.

For you to qualify for the program, you should have bought the house between Jan 1, 2009 to April 30, 2010. An allowance is available to buyers, who entered into a contract by April 30, 2010 and closed the transaction by Sep 30, 2010.

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