Federal tax credit for homebuyers in the U.S.

Uncle Sam is giving Americans up to $8000 when they buy a home by May 1, 2010 (with a closing by July 1, 2010), in the form of a tax credit.

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.

Related articles:

• Rent vs. Buy calculator
• How much home can you afford?

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