Your Income Tax Return: Understanding the Homebuyer Tax Credit

If you purchased a home in 2009, you may qualify for the homebuyer tax credit. This credit can significantly help you save on your income taxes and/or increase your tax return. However, figuring out just which credit you qualify for can be confusing. For starters, there is the tax credit that was allotted for first-time homeowners. There is also another tax credit that was awarded to homebuyers who had previously owned a home. And finally, there is the homebuyer credit of 2008, which is more of a loan than a credit.

To make things even more confusing, maximum income levels and home sale prices must also be considered when applying for the homebuyer tax credit. Furthermore, vacation homes and homes bought as rental property are disqualified from receiving this credit.

To better understand the homebuyer tax credit, it helps to know its three basic forms. The first credit that was passed by Congress was actually a long-term, interest-free loan that had to be repaid over 15 years. The maximum amount of this credit was $7,500 and it applied to principal residences that were purchased from April 9, 2008 to June 30, 2009. The second homebuyer tax credit was an actual credit, not a loan. The maximum amount of this credit was $8,000 and it applied to residences that were purchased from January 1, 2009 to November 30, 2009. The third tax credit extended the eligibility end date of the second tax credit to April 30, 2010. It also applied a maximum credit of $6,500 to existing homeowners who purchased another residence from November 7, 2009 to April 30, 2010.

There are other stipulations as well. The home that is purchased must be used as a primary residence, not as a vacation or rental property. The home cannot cost more than $800,000 if purchased after November 6, 2009. Also, existing homeowners must have lived in the same residence for at least 5 out of the last 8 years, although they need not be living in that residence at the time they purchase their second new home.

In terms of income, the maximum modified adjusted gross income level for individuals is $125,000, while for married couples it is $225,000. People earning incomes above those aforementioned levels do not qualify for the homebuyer tax credit.

One of the advantages of the homebuyer tax credit is that you do not have to wait until the next tax year in order to claim a credit for a home purchased in 2010. In other words, if you purchase a home in 2010, you may still claim the tax credit on your 2009 return.

One of the disadvantages of the homebuyer tax credit is that when Congress revised the repayment requirement on its 2008 homebuyer tax credit, it did not make the policy retroactive. Thus, the $7,500 loan sum that was filed on homes purchased from April 9, 2008 to June 30, 2009 must still be repaid.

Finally, homeowners who sell their credited residence in less than three years from the date of purchase, or who turn that residence into a rental property, must pay back the tax credit.