Economic Stimulus Plan

Congress Has Approved An $8,000

Tax Credit

For First-Time Home Buyers

Under the

American Recovery and Reinvestment Act of 2009

Frequently Asked Questions:

Q:     How much is the credit?

A:     The tax credit would be $8,000 or 10% of the purchase price,

         whichever is lower.

Q:     Is a tax credit the same as a tax deduction?

A:     No.  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 an $8,000 tax credit would

         owe nothing to the IRS.

Q:     What type of purchase is eligible?

A:     The $8,000 tax credit included in the 2009 economic stimulus

         plan is available for the purchase of a principal residence by

         first-time home buyers.  This includes new or resale homes,

         condos, townhouses and co-ops.

Q:     What is the definition of a first-time home buyer?

A:     The law defines "first-time home buyer" as a buyer who has not

         owned a principal residence during the three-year period prior

         to the purchase.  For married taxpayers, the law tests the

         homeownership history of both the home buyer and his/her

         spouse.

         If one spouse has not owned a home in the past three years, but

         the other spouse has owned a principal residence, neither 

         spouse will qualify for the first-time home buyer tax credit. 

Q:     When does the home have to be bought to qualify for the tax

         credit?

A:     To qualify for the tax credit, a home purchase must occur on or

         after January 1, 2009 and before December 1, 2009.

Q:     Who qualifies for the first-time home buyer credit?

A:     According to the IRS, any taxpayer who has not owned a home

         during the three years prior to the date of purchase can qualify

         for the credit.

Q:     Do home buyers have to repay the credit?

A:     No; however, if the home is sold within three years of purchase,

         the credit is reversed.

Q:     Are there income limitations on the tax credit?

A:     The tax credit begins to phase out for individuals with modified

         adjusted gross income over $75,000 ($150,000 for joint filers).

Q:     How do eligible first-time home buyers claim the tax credit?

A:     Participating in the tax credit program is easy.  Eligible home

         buyers claim the tax credit on their federal income tax return.

         Specifically, home buyers should complete IRS Form 5405 to

         determine their tax credit amount, and then claim this amount

         on Line 69 of their 1040 income tax return.  No other applications

         or forms are required, and no pre-approval is necessary.

Buyers should consult with a tax advisor regarding

eligibility for tax credits.

Source:  www.congress.org