The $8,000 Tax Credit -- Let's Break it Down

By
Mortgage and Lending with United Lending

$8,000 homebuyer tax credit

Update: Please see highlighted sections for further clarifcation regarding the $8,000 tax credit. I'll be making updates as more interpretation of the bill emerges.

Signed, Sealed, Delivered I'm Yours....is not just Stevie Wonder's 1970 Motown classic, but our $787 Billion (yes, with a B) stimulus plan with various tax cuts and spending programs aimed at reviving our economy. This is our country's largest anti-recession effort since WW2.

Part of the stimulus included a revision to last year's repayable tax credit to an $8,000 tax credit that does NOT need to be repaid.

Be advised, not all tax preparers are aware of all of the provisions of the new tax credit. I had a client call me from Jackson Hewett saying they would not apply the $8,000 tax credit for a house she purchased in 2009 to her 2008 tax year. This is not correct, see When Can the Credit be Claimed below.

So here's a breakdown of the new $8,000 tax credit:

All first-time homebuyers who purchase a home between January 1, 2009 and November 30 , 2009 may be eligible for a tax credit of $8,000 or 10% of the purchase price, whichever is lower. Unlike its $7,500 predecessor, the $8,000 does not need to be repaid.

Tax Credit vs. Tax Deduction

This is a tax credit, not a tax deduction, meaning its a dollar-for-dollar decrease to your tax liability. Also, the tax credit is refundable, meaning you can receive the full value of the credit even if you do not have an $8,000 tax liability.

Phase-Out

The tax credit phases-out for individuals making $75,000 or over modified adjusted gross income (MAGI), and couples making $150,000 or over MAGI. Below are examples of how the phase-out will apply to the two different scenarios.

Individual Making $75,000 or Over

Assume that an individual homebuyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Couple Making $150,000 or Over

Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

I'm not sure of the $20,000 significance, other than it's defined as the factor to use on pgs. 615-616 of HR 3221.

Who Cannot Take the Tax Credit

If any of the following apply, you cannot take the tax credit:

1. Individuals making $95,000 or over MAGI, and couples making $170,000 or over MAGI; meaning you receive no tax credit if your income is this much or more a year.

2. You buy your home from a close relative, including: parent, sibling, spouse, grandparent, child, etc.

3. You sell your home within the first three years of purchasing it. If this occurs, the tax credit must be repaid.

4. You are a non-resident alien

5. If home ceases to be your primary residence within first year of purchase. In other words, if you purchase a home in 2009, and move-out or sell in 2009, then you can't take the tax credit on your 2009 tax return. I'm assuming you are subject to recapture if you purchase the home in 2009, take the credit on your 2008 tax return, and move-out or sell in 2009.

First-time Homebuyer Definition

A first-time homebuyer is defined as someone who has not owned a home within the last three years. If married filing jointly, both spouses must meet the first-time homebuyer definition to take the tax credit.

The bill states both spouses must be first-time hombuyers to qualify for the credit. There doesn't seem to be an exception to this rule if filing separately. However, I'd consult your tax preparer.

Recapture Period

If you dispose of the primary residence or it ceases to be your primary residence during the first three years of purchase, the tax credit is recaptured. In doing my research, there seems to be conflicting opinions on whether you're subject to recapture if the home "ceases" to be your primary residence during the first three years of purchase. The National Association of Realtors seems to believe recapture only applies to selling your home. However, it seems to me that moving out of the property within three years would also make you subject to recapture. I'd recommend reading the bill's verbiage for yourself (carries over from HR 3221, pg 619) and consulting your tax preparer. The section reads:

ACCELERATION OF RECAPTURE.—If a taxpayer disposes of the principal residence with respect to which a credit was allowed under subsection (a) (or such residence ceases to be the principal residence of the taxpayer (and, if married, the taxpayer’s 20 spouse)) before the end of the recapture period.

When Can the Tax Credit be Claimed?

The $8,000 tax credit can be claimed for your 2008 tax year (filed by April 15th 2009), 2008 amended return or 2009 tax year.

Homes That Qualify

The tax credit is applicable to any home that will be used as a principle residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principle residence also qualify. For new construction, the purchase date is considered the day you occupy the home; therefore you must move-in by November 30th 2009 to qualify for the tax credit.

Also, homes in the District of Columbia qualify for the tax credit. However, it cannot be used in conjunction with the existing District of Columbia tax credit.

If you purchased a home under the Mortgage Revenue Bond Program, you can utilize the $8,000 in conjunction (different than 2008 $7,500 repayable tax credit).

How About Those Who Purchased Homes in 2008?

Homes purchased in 2008 are subject to the $7,500 repayable tax credit.

 

Sources:

HR 1, American Recovery and Reinvestment Act

HR 3221: Housing Economic and Recovery Act of 2008


 

 

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Re-Blogged 11 times:

Re-Blogged By Re-Blogged At
  1. Donald Bradbury 02/21/2009 07:39 PM
  2. Elizabeth Cooper-Golden 02/21/2009 08:54 PM
  3. Geri Doyle 02/21/2009 10:26 PM
  4. Svetlana Stolyarova 02/22/2009 08:15 AM
  5. Gabe Sanders 02/22/2009 10:29 AM
  6. Steve Miller 02/22/2009 11:30 AM
  7. Faina Sechzer 02/22/2009 02:11 PM
  8. Judy Greenberg 02/22/2009 05:33 PM
  9. Yuno Marioni 02/22/2009 11:39 PM
  10. Bridget Cella 02/23/2009 10:11 PM
  11. Raine Carraway 03/01/2009 12:36 AM
Topic:
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Location:
Texas Travis County
Groups:
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Tags:
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Rainmaker
1,504,846
Rebecca Gaujot, the GO TO REALTOR
Coldwell Banker Stuart & Watts Real Estate - Lewisburg, WV
Lewisburg WV Real Estate, Greenbrier County

A great post and good break down oin the tax credit.  I'm sending to my associates.

Feb 22, 2009 10:56 AM #38
Rainmaker
187,073
Marty Remo
RE/MAX Benchmark- Marty Remo-CDPE, E-Pro - Monroe, NY
HV Home Team

Nice job.  I'll send this link to my clients.

Feb 22, 2009 11:20 AM #39
Rainer
15,642
Steve Miller
Steve Miller iMarketing - Coeur d'Alene, ID
iMarketing Success Online

Great post Nicole,  Like others I've wanted to write on this aswell but, have yet to sift through the details as neatly as you've done here.  Your post is definitely worth a link from my page.  Thank you.  Steve

Feb 22, 2009 11:23 AM #40
Rainmaker
223,787
Brien Berard
Remax Professionals Laurel MD - Laurel, MD
Maryland Real Estate Agents - Laurel Real Estate

Great stuff Nicole.  I am gonna bookmark it for later referrencing.  Thanks again.

Feb 22, 2009 11:43 AM #41
Rainer
91,792
Faina Sechzer
Henderson-Sotheby's International Realty - Princeton, NJ
Real Estate Expert - Princeton, Montgomery ,Hopewell, NJ

Nicole, great explanation as evidenced by the number of people who want to re-blog this post. Great job!

Feb 22, 2009 01:25 PM #42
Rainmaker
558,767
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi Nicole -- Very clear explanation, thank you.  You write very well! :-)

Feb 22, 2009 01:36 PM #43
Rainmaker
25,567
Myrick Tantiado
Alain Pinel Realtors - San Francisco, CA

Thanks for sharing a very thorough explanation of the $8k tax credit!  Very useful info moving forward.

Feb 22, 2009 01:37 PM #44
Rainer
5,185
Emily-Ann Montero
Coldwell Banker - Burlingame - Burlingame, CA
San Mateo County Real Estate

Kudos Nicole for the breakdown.  Your diligence demonstrates your dedication in the business.  Congratulations.

Emily

Feb 22, 2009 03:51 PM #45
Rainmaker
452,646
TIM MONCRIEF
Bartlett Real Estate Group, llc - Austin, TX
$44,530,000 2013 Production (breg)

As this market represents 40% of the market on average (not now) this is a huge move to get money moving....but people have to use it.  That is the key.. We will see......

Feb 22, 2009 04:52 PM #46
Rainmaker
160,665
SarahGray Lamm
Allen Tate Realtors Chapel Hill, NC 919-819-8199 - Chapel Hill, NC
Realtor - 100K Hours of NC Real Estate Experience

Excellent explanation! If you don't mind I will share with my non AR co-workers!!!

Feb 22, 2009 05:14 PM #47
Rainer
20,661
Jennifer Mallory
Keller Williams Hudson Valley Realty - Nyack, NY
Nyack NY Real Estate Broker Associate

I hope you also sent an email to all your clients and a letter containing all the info to the renters in the area! Your explanation goes a long way elucidating what is a tremendously long and complicated document...

Feb 22, 2009 06:40 PM #48
Rainmaker
230,126
Debbie Summers
Charles Rutenberg Realty - Orlando, Florida - Lake Mary, FL
MoveToLakeMary.com or 407-758-1020

Nicole -

Nicely done...

It really is a talent to be able to explain a complicated issue so that everyone can understand.

Feb 22, 2009 07:08 PM #49
Rainer
73,665
Sabrina Kelley
ERA The Herman Group - Woodland Park, CO
Pikes Peak Region Realtor, Teller, Park and El Paso County Colorado

I didn't know you had to hold the home for three years. I am definitely sending my buyers to their accountant as the finer details seem to be changing with every new bit of information I reap.

Feb 22, 2009 07:23 PM #50
Rainmaker
264,160
Kim Daugherty
www.RealFamilyRealEstate.com - McKinney, TX
d + b real estate, McKinney, TX REALTOR Broker/Owner

Nicole - nice breakdown on this very important issue. I think I just might re-blog this and share with even more consumers! We need to get the details out there and you've laid it out nicely - easy to read and understand. Way to go!

Feb 22, 2009 08:37 PM #51
Rainmaker
91,811
Gerry Suarez Jr.
Mortgage Financial Group, Inc. - Mount Dora, FL
Expert Home Loan Advisor

Nicole,

As someone who was following the bill and our Congress' antics I congratulate you for taking the important facts and presenting them in a concise, easy to read manner. Great job!

Gerry Suarez, Jr.

Your FHA Loan Pro!

Feb 23, 2009 08:59 PM #52
Rainer
29,656
Jay Williams
Greenville, NC - Greenville, NC
Mortgage Loan Officer - Getting You The Right Loan

Nicole, nice breakdown and easy to follow. I appreciate your updates as you obtain additional clarification.

Jay

Feb 25, 2009 06:28 PM #53
Ambassador
1,464,596
Jennifer Fivelsdal
JFIVE Home Realty LLC | 845-758-6842|162 Deer Run Rd Red Hook NY 12571 - Rhinebeck, NY
Mid Hudson Valley real estate connection

Nicole - This is a detail breakdown which will be appreciated by many.

Feb 27, 2009 11:19 PM #54
Anonymous
Alessandra

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Alessandra

http://www.craigslisthelper.info

Mar 27, 2009 06:35 AM #55
Rainmaker
233,528
Barb Fischer
RE/MAX Hometown Realtors - La Mesa, CA

Thank you thank you thank you Nicole!

Oct 13, 2009 07:39 PM #56
Anonymous
Unhappy home buyer

Does anyone know who or where i can write to in regards to the 2008 "Tax Credit" or interest free loan of $7500.  I don't fell that it is fair that in 2009 people would get $8000 "Tax Credit" that they DON'T have to pay back. I feel that we should be allowed to keed the money without paying it back, or that those in 2009 should have to pay thiers back as well. Those of us who purchased a home last year helped the economy as much as those who purchased in 2009.  If anyone has info please e-mail me at KJS7654@cox.net  Thank you!!!

Oct 17, 2009 06:02 PM #57
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Nicole Lahti

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