Missoula Real Estate Blog

Explanation of The First-Time Home Buyer Tax Credit is courtesy of Campbell & Associates, PC and can be reached at 406-728-9288. Missoula, MT

First-Time Home Buyers Tax Credit

How Much: This credit is equivalent to 10 percent of the purchase price of the home – up to a maximum of $8,000 – and applies only to first-time home buyers and principal residences. But unlike an earlier $7,500 home buyer tax credit, this one does NOT have to be repaid.

First Time Buyers Defined: For the purpose of this legislation, a “first-time home buyer” is someone who hasn’t owned a principal residence for 3 years before buying a house. (The date of purchase is considered the day that the title is transferred.) That means if you’ve owned a vacation home but not a principal residence within the past three years, you would still qualify for the credit. For married taxpayers, the law tests the home ownership history of both the home buyer and his or her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit.

2009 Buyers Only: Only those who purchase a home on or after January 1, 2009 and before December 1, 2009 are eligible for the credit. Anyone who bought a home last year won’t be able to take advantage of it.

Income Limits: The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less to qualify for the full credit, $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits.

Refundable: Because the tax credit is “refundable,” qualified buyers can take advantage of it even if they don’t have any tax liability.

Recapture: Buyers have to own the home and use it as their personal residence for at least three years in order to capitalize on the credit. If they sell the home or convert it to non-personal residence use before then, they will have to return the credit to the government. (Exceptions will be made in certain cases, such as death or divorce.)

Principal Residence: The home must be used as a principal residence. This includes single family detached homes, townhouses, condos, manufactured homes, mobile homes and houseboats. It also includes a home you build on a lot you already own.

2009 or 2008 Credit: The law allows tax payers to chose (“elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates with the credit can be claimed (tax filling for 2008 returns instead of 2009 returns).