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Federal
tax credit for homebuyers in the
U.S.
Uncle Sam is giving Americans $8000 when they
buy a home by Dec. 31,
2009, in the form of a tax
credit.
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by Michael Bluejay
Last updated: Oct. 2009
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A tax credit is way better than a tax
deduction. A deduction only reduces your
income. A credit is subtracted right off the
amount of tax due.
Here's an example. Let's say you make
$40,000 (perhaps you and your spouse together) and
you have $8000 in deductions. Your adjusted
income is thus $40k - $8k = $32k. At a tax rate of
15%, you'll pay $32,000 x 15% = $4800 in
taxes.
But now let's say you get a tax
credit, like the subject of this
article. You make $40,000, and your taxes are
$40,000 x 15% = $6000. But you have an $8000 tax
credit, so your total taxes are $6000 -
$8000 = negative $2000. That means
you get $2000 back! That's
some difference! Tax credits are way better
than tax deductions.
 Incidentally,
here are the 2009
tax brackets for both single and married
filers.
Okay, enough about credits vs. deductions,
let's see the details of the homebuyer tax
credit:
- It's not just for first-time
homebuyers! You still qualify even if you've
owned a home before, as long as you haven't
owned a home in the last three years.
- The home has to be your primary
residence. It can't be rental property or
vacation property. But you can generally rent
out a room or two and still qualify, as long as
you live in the house yourself.
- It's for homes purchased in 2008 or 2009,
only.
- The credit is 10% of the purchase price
or $8000, whichever is less. ($7500 if
bought in 2008 instead of 2009). Examples:
- $70,000 home = $5,000 tax
credit
- $80,000 home = $8,000 tax
credit
- $300,000 home = $8,000 tax credit
(maximum credit is $8,000)
- If your taxes are low enough, you get
money back. If your taxes are only $3000 and
you get an $8000 credit, the IRS will send you a
check for $5000.
- If you're rich, you don't qualify.
Married couples making between $150-175k jointly
get a reduced credit. Couples making over $175k
don't get the credit at all. Single taxpayers
making $75 to $90k get a reduced credit, and
those making over $90k don't qualify.
- You can't buy the home from a close
relative. Nice try.
- You can't sell the home before the end of
the year. Well, you're able to sell
it, of course, but if you do then you don't get
the tax credit.
I tried to make sure this page was as
accurate as possible, but I recommend you
double-check the IRS
page on the tax credit, or check with a tax
advisor.
Thanks to
Jonas McCammon for helping me keep this page
accurate.
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