The original bill that was passed through the senate was 15K credit. The credit was chopped in half in during negotiations. Unlike a similar credit that Congress provided last year, you don’t have to pay this one back over 15 years. How the new first-time home buyer tax credit works:
- A buyer who has not owned a home in the past three years is a "first-time buyer". To qualify, they must by a principal residence. No second homes or investment properties. The new home can be a new construction or existing home.
- The credit is 10% of the value of the home -- up to $8,000.
- Unlike the previous credit, it doesn't matter what form of a loan the buyer uses. A buyer can pay cash, seller finance, or use a FHA, VA, conventional or rural development loan. The buyer can participate in a state or local subsidized loan program. Contrary to some press reports, there is no minimum down payment required.
- The credit is taken by filing a tax return. The buyer can elect to apply the credit to their 2008 or 2009 tax return. So, a buyer buying right now could close and then file their tax return and take the credit on LAST YEAR'S tax return.
- The credit is fully refundable. This is very important. It doesn't matter what the buyer's tax liability is or how much they have paid in taxes. They get the full amount back as a refund limited only by any unpaid taxes. Most buyers will get a U.S. Treasury check back for the full $8,000. Please note: This is NOT a tax deduction where it merely reduces your taxable income.
- The credit is limited based on income. A single individual earning up to $75,000 or a couple up to $150,000 gets the full credit. It is phased out in steps above that level of income.
- The credit, unlike the previous version, does not need to be repaid. There is one exception. If the home is sold within three years, the credit is recaptured but liability is limited by any gain on the sale.
- The new credit applies to sales after January 1, 2009 and through November 30, 2009.
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