Please Note: The Hombuyer Tax Credit has been revised. Click here for a post on the new homebuyer tax credit provisions.

If you have been thinking about buying a home to take advantage of the $8000 tax credit, be aware that you must purchase the home before December 1, 2009.  While there are a number of groups that are lobbying Congress to extend the credit, the last day to purchase and qualify is Nov. 30th.  Keep in mind that the purchase date as defined here is the date you acquire the home.  If you are having the home constructed, the purchase date is the date you occupied the home (not the date you signed contracts, agreed to buy, etc.).  If you are buying an existing home, the purchase date is usually going to be the date that you close and take possession, not the date that your purchase contract is executed (big difference).

Other restrictions to the credit that you should know about include:

• The credit is the smaller of $8000 or 10% of the purchase price.  So, if the price of your home is $60,000, the most you could receive would be $6000.
• To be a “first-time” homebuyer:
  • the home you are buying must be your main home located in the US and purchased on/after Jan. 1, 2009 and before Dec. 1, 2009 (there’s another repayment credit available for homes purchased in 2008)
  • you (and your spouse if married) cannot have owned any other main home for the 3 years prior to the date of purchase
• Your modified adjusted gross income (the amount of income that’s reported to the IRS after allowable adjustments) must be $75,000 or less ($150,000 or less if married filing jointly) to receive the full credit.  If your adjust gross income is between $75k – $95k (or $150k – $170k for married filing jointly), then you may receive a portion of the credit.  If it’s more than that, then you will not receive any of the credit.
• From the date that you purchase the home, you must live in it as your main home for the next 3 years or you will have to pay the credit back to the government.  Please note the use of “main home” – the government defines this as the home you live in most of the time.  If you have more than one home and only live in one a few weeks or months out of the year, that one would not be your main home.

There may be other limits/restrictions that you should know about.  You can find more info on the IRS web site at: http://www.irs.gov/newsroom/article/0,,id=204671,00.html.  Additionally, the form you use to file for the credit contains the instructions and more details – you can find a copy of it here: http://www.irs.gov/pub/irs-pdf/f5405.pdf

There may be state programs available to you in addition to this federal tax credit that will allow you to receive more money when purchasing your first home.  Here’s a link for more information on such a program available in Texas: http://www.tdhca.state.tx.us/homeownership/fthb/mort_cred_certificate.htm This one has a lot of the same restrictions as the federal tax credit.  However, some of the restrictions are removed for honorably discharged veterans on this state program.

This post was written for informational purposes only and should not be considered an authoritative source.  I am not a tax professional and I would encourage you to seek the advice of a tax professional and/or mortgage lender for specific information on these programs.  Also, for the federal tax credit, your best source may be to just call the IRS.  I realize that calling the IRS may be something that a lot of people would rather not do.  Keep in mind that even if you use a tax professional when filing, that you are ultimately responsible for the accuracy of your taxes, not your CPA.  The IRS is available to answer any tax related questions you may have – the number to call for individual taxes is 800-829-1040.  Be prepared to wait for several minutes.  When the representative answers, they will tell you their name and employee ID – write this down!  If you’re ever audited, it’s in your best interest to have this kind of information documented.

Information derived from the IRS web site and the Texas Department of Housing & Community Affairs web site.