Dennis Doll
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How do I claim the tax credit?
Do I need to complete a form or application?

Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.


What types of homes will qualify for the tax credit?

Any home purchased by an eligible home buyer will qualify for the credit, provided that the home will be used as a principal residence. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. 
Note: For First-Time buyers, you may not have owned a home in the previous three years. Current Homeowners must have continously lived in their home for at least 5 of the previous 8 years.

Instead of buying a new home from a home builder, I have hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?


Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house.
In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.


What is "modified adjusted gross income"?


Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains. 
To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.


If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?


Possibly. It depends on your income. Partial credits of less than the set amounts are available for some taxpayers whose MAGI exceeds the phaseout limits. The credit becomes totally unavailable for individual taxpayers with a modified adjusted gross income of more than $125,000 and for married taxpayers filing joint returns with an AGI of more than $225,000.


Can you give me an example of how the partial tax credit is determined?

*Just as an example, assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, 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 home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

*Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $138,000. The buyer’s income exceeds $125,000 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.

*Please remember that these examples are intended to provide a general idea of how the tax credit might be applied in different circumstances. You should always consult your tax advisor for information relating to your specific circumstances.


Does the credit amount differ based on tax filing status?


No. The credit is in general equal to $8,000 (or $6,500 depending on the buyer) for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as "married filing separately" (in effect, filing two returns), then the credit of $8,000 ($6,500) is claimed as a $4,000 ($3,250) credit on each of the two returns.


Are there any circumstances for which buyers whose incomes are at or below the $125,000 limit for singles or the $225,000 limit for married taxpayers might not be able to claim the full tax credit?

In general, the tax credit is equal to 10% of the qualified home purchase price, but the credit amount is capped or limited at $8,000. ($6,500 for Current Homeowners) For most first-time home buyers, this means the credit will equal $8,000 ($6,500). For home buyers purchasing a home priced less than $80,000 ($6,500) , the credit will equal 10% of the purchase price.

I heard that the tax credit is refundable. What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified First-time home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).


What is the difference between a tax credit and a tax deduction?


A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives a $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives a $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.

The same would apply for the $6,500 credit for Current Homeowners.


I am not a U.S. citizen. Can I claim the tax credit?

Please check with the IRS. They provide a definition of "nonresident alien" in IRS Publication 519.



Does the credit have to be paid back to the government? If so, what are the payback provisions?


Buyers who qualify do not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during this three year period, the full amount of the credit must be repaid.

If I’m qualified for the tax credit and buy a home in 2010, can I apply the tax credit against my 2009 tax return?


Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2010 as if the purchase occurred on December 31, 2009. This means that the 2009 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2009 returns instead of for 2010 returns). A benefit of this election is that a home buyer in 2010 will know their 2009 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount. Additionally, if the sale is closed prior to December 31, 2009 this may be applied to the 2008 tax return.


Is there any way for a home buyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax returns?


Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the future home buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the downpayment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding. Prospective home buyers should note that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest charges and penalties.


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