2008 New Home Purchase Confusion

Does the New Home Buyers credit confuse you? Well here are some quick tips that might help you understand the 2008 credit.

The 2008 credit is an "interest-free" loan in the amount of $7,500 which is paid back at $500 per year for 15 years. The downside of this credit is that if you do not get a refund in any one payback year, you will owe the $500 plus any tax due.

The 2009 credit is $8,000 of "free" tax money with no payback.

Now there are stipulations on this credit that must be met in order to receive.

The 2008 Credit:

Applies to home purchases after April 8, 2008, and before July 1, 2009.

Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.

Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

However, the credit operates much like an interest-free loan, because it must be repaid over a 15-year period. So, for example, an eligible taxpayer who buys a home today and properly claims the maximum available credit of $7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or $500, as an additional tax on his or her 2010 return.

If any of the following describe you, you cannot take the credit, even if you buy a main home:

Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.

You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.

You stop using your home as your main home.

You sell your home before the end of the year.

You are a nonresident alien.

You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.

Your home financing comes from tax-exempt mortgage revenue bonds.

You owned another main home at any time during the three years prior to the date of purchase.

For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.

However, some exceptions apply to the repayment rule. They include:

If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.

If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.

If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.

If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.


Basic information
Homes purchased in 2008
Homes purchased in 2009
Scenarios
First-Time Homebuyer Credit
IRS Information Related to the American Recovery and Reinvestment Act of 2009