If you did NOT purchase your principal residence BETWEEN April 9, 2008 and December 31, 2008, click here.

A principal residence purchased between April 9, 2008 and December 31, 2008 is covered under the "Housing Assistance Tax Act of 2008" which created the refundable first-time homebuyer credit up to $7,500. In most situations, it has to be paid back ratably over a 15 year period beginning in year 2010. Therefore, this credit is actually an interest-free loan!

You MUST be Considered a "First-Time Homebuyer"

A “first-time homebuyer” is an individual who has NOT owned another principal residence in the United States or District of Columbia at any time during the 36-month period prior to the date of purchase.

If the individual is married at time of purchase, neither the individual nor his or her spouse may have had ownership of a principal residence during the 36-month period prior to the date of purchase. Even if the individual is filing separately from their spouse, the individual MUST take into account their spouse's ownership interest in any other principal residence.

The Home MUST be Your Principal Residence

An individual's "principal residence" is the home where he or she ordinarily lives most of the time. An individual can only have one principal residence at any one time. The home MUST be a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities. For purposes of claiming the first-time homebuyer credit, the principal residence MUST be located within the United States including the District of Columbia.

The Settlement Date MUST be Between April 9, 2008 and December 31, 2008

The "settlement date" is the date that closing occurs and title to the property is transferred to the new homeowner. If a principal residence is being constructed, the purchase date is considered to be the first date the individual occupies the home as their principal residence.

Credit Amount

For a qualifying first-time homebuyer who purchases a principal residence between April 9, 2008 and December 31, 2008, the REFUNDABLE homebuyer credit is equal to 10% of the purchase price up to a maximum credit of $7,500 ($3,750 if married filing separately).

If there is more than one qualifying first-time homebuyer for the same principal residence, the credit may be allocated among the qualifying homebuyers or one homebuyer may claim the entire credit. The total credit allocated among the homebuyers cannot be greater than 10% of the purchase price or $7,500.

Income Limitations for Claiming the Homebuyer Credit

For couples who are married filing jointly, their modified adjusted gross income (MAGI) MUST be $150,000 or LESS to qualify for the full credit. A partial credit is available if their MAGI is over $150,000, but less than $170,000. No credit is available if MAGI is $170,000 or higher.

For all other filers, their modified adjusted gross income (MAGI) MUST be $75,000 or LESS to qualify for the full credit. A partial credit is available if their MAGI is over $75,000, but less than $95,000. No credit is available if MAGI is $95,000 or higher.

Repayment of the Homebuyer Credit

If the principal residence is purchased between April 9, 2008 and December 31, 2008, the credit generally must be paid back in equal installments (interest-free) over 15 years beginning two years AFTER the date of purchase. If the home is sold before 15 years, any remaining credit recapture must be repaid in the year of sale. If the home is sold or no longer used as a principal residence before repaying the credit, the unpaid balance becomes due in the year in which the residence is sold or is no longer used as a principal residence. However, the amount of recaptured credit will not be greater than the amount of capital gain from the sale of the residence to an unrelated person.

There are some exceptions to repayment:

• If you die, repayment of the credit is not required. If you filed a joint tax return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.

• There is no accelerated recapture of the repayment amount if the home is transferred in a divorce settlement. The spouse receiving the home is responsible for making all subsequent installment payments.

• There is no repayment if the home is destroyed or condemned and you acquire a new principal residence within 2 years of the event.

Who Else CANNOT Claim the Homebuyer Credit?

• Individuals who buy and sell the same principal residence in the same year or the home ceases to be used as a principal residence by the end of the year,

• Individuals whose principal residence is NOT located in the United States or District or Columbia,

• Individuals who acquire their principal residence by gift or inheritance,

• Individuals who are nonresident aliens,

• Individuals who purchase a principal residence from a close relative*,

• Individuals who finance their home with tax-exempt mortgage revenue bonds, or

• Individuals who are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.

*Close Relative Defined

1. Your spouse, ancestors (parents, grandparents, etc.), or lineal descendants (children, grandchildren, etc.).

2. A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation.

3. A partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.

When to Claim the Homebuyer Credit?

For a qualifying first-time principal residence purchased between April 9, 2008 and December 31, 2008, the credit can be claimed on an original 2008 federal income tax return or a 2008 amended federal income tax return.

Can the credit be claimed if a first-time homebuyer has no taxable income and/or is not required to file a tax return?

Yes. The credit is fully refundable if the person qualifies as a first-time homebuyer. Although there are maximum income limits for qualifying first-time homebuyers, there is no minimum income criteria. Therefore, an individual with no taxable income who qualifies as a first-time homebuyer may file for the sole purpose of claiming the credit for a refund.

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