$8000 First-Time Homebuyer Tax Credit: 5 Things to Know

Earlier this year Congress & President Obama signed into law the American Recovery and Reinvestment Act of 2009. This bill, enacted to help stimulate the battered economy, included a tax credit of up to $8,000 for First-Time Homebuyers, replacing the old $7,500 tax rebate program.

According to industry reports, first-time homebuyers now account for more than one-half of all home sales. It’s obvious that this tax-credit, as well as historically low interest rates, are providing huge incentives to potential home buyers who were previously sitting on the fence to now make a move. In addition, those who were not interested in buying a home in this market, are seriously reconsidering with these new incentives dangling in their face.

Now before you rush out and start applying for a mortgage loan, here are 5 important things to know about this $8,000 First-Time Homebuyer Tax Credit:

1) Amount of Credit: The tax credit is based on the lower of the two; $8,000 or 10% of the purchase price. In Hawaii, you’ll probably won’t find too many properties for $80K or less so rest assured you should be eligible for the full $8,000 credit.

2) Income Limitations: The value of the tax credit diminishes as the home buyers’ income rises above $75,000 if you file as a single person, or $150,000 if you file as a married couple. Once you hit $95,000 (single person) or $170,000 (married couple), the tax credit phases out completely.

3) Who is Considered a First-time Homebuyer?: As defined by the IRS, anyone who has not owned a “main home” in the last 3 years where “main home” is defined as a home in which a person has lived for most of the time. So if you owned a property in the last 3 years, but it was either an investment property or second home (as long as you have not lived there most of the time), you may still be eligible for this credit.

4) 2009 Buyers Only: The purchase of a “main home” must be made between January 1st, 2009 – December 1st 2009. We still don’t know if congress will make an extension to push this credit into 2010.

5) Recapture: If this property is sold within 3 years, or you cease to use it as your “main home” within 36 months, the IRS will require that you payback the entire $8,000 credit.

Please keep in mind that I am a VA Loan Specialist, and not a tax professional. Although this information is deemed reliable, by all means, always consult your tax professional for expert advice on the tax law.