On February 17, 2009, the president signed into law the American Recovery and Reinvestment Act of 2009. As part of this act the First Time Homebuyer credit was modified from its original form under the Housing and Economic Recovery Act of 2008.
The new act increases the credit for first time homebuyers to $8,000 from its original $7,500, eliminates the repayment requirement for qualified purchases after December 31, 2008, and extends the purchase period another five months to November 30, 2009.
A qualified buyer is a single taxpayer or married couple who have not owned a primary residence at anytime during the three year period prior to the purchase of the home they are claiming the credit on. Also, there are income limitations that phase out the allowable credit starting at $75,000 of adjusted gross income for single individuals and $150,000 for married couples.
To claim the credit taxpayers fill out IRS Form 5405 – First Time Homebuyers Credit. Then you have the option of filing the form with your 2009 1040 Individual Tax Return or electing to take the credit on your 2008 tax return. Even if you have already filed your 2008 return, you can go back and amend the return to claim the credit. Besides the fact that the credit does not have to be repaid, it is fully refundable. This means that even though you may not have any tax liability, you still receive a check back from the Treasury.
There are some restrictions though. The credit is limited to 10% of the purchase price and you must own and use the property as your primary residence for a minimum of three years. If for some reason you fail to meet these requirements, the credit must be repaid in the year that the disqualifying event occurs. In other words, if you sell the property or if you move out and it no longer is your primary residence for whatever reason within that three year window, then the credit claimed must be repaid.
With real estate values at record lows and the U.S. Treasury giving away free money to qualified home buyers, anyone thinking about buying into their first home, Aaron Johnson, CPA of Borgida & Company affirms that this is probably the best time to buy.
Tax Update: There are a couple of bills making their way through the U. S. Congress right now that would extend the credit period beyond the November 30 deadline into the middle of 2010 and possibly increase the credit to $15,000 to qualified buyers.