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Understanding the Home Buyer Tax Credits

March 16, 2011 | Comments: 0 | Views: 52

In an effort to boost the economy, several tax credits programs were created.The first program was for new homeowners. For tax year 2008, the maximum available credit was $7,500.For tax year 2009, the credit was increased to $8,000.For married couples filing individually, each claims one-half of the credit on their separate forms.

Owners who decided to sell and buy another home were offered a different tax credit program. The maximum credit for existing homeowners trading up was $6,500.As with the new homeowner tax credit, if the credit was being claimed by a married couple filing separately, then each would claim one-half of the available credit on their separate tax forms.

A purchase price ceiling applied to each of home buyer tax credit programs.No home over $800,000 was eligible for the credit. The ceiling is an all-or-nothing deal, without any gradual incrementing. So a house purchase at $799,999 would qualify, but a house purchase at $800,000 would completely eliminate any possible credit.

The definition of "first-time" home buyer, for the purposes of the home buyer credit, is anyone who has not owned another residence during any of the prior three years.If the home buyer is a couple, and if either one of the couple had owned a home within the prior three years, then the purchase would not qualify for the first time home buyer credit.

While for most citizens the availability of the credit will soon expire, there are some exceptions. Individuals who are in the Foreign Service or in the military, serving outside of the United States, will be given an additional year to claim the credit.

Because of the wording of the act, individuals who owned homes for vacation or rental purposes are not excluded from claiming the tax credit.They meet the primary requirement of not owning a primary residence. However, if they used the vacation or rental property as a primary home at any time during the preceding three-year period, they credit is disallowed.

Another critical difference between is how the credit is treated.For home purchases in 2008, the first-time home buyer credit is to be repaid over a fifteen-year period. For home purchases after 2008, there is no repayment requirement.

The tax credit comes into play when the buyer files their federal tax return in the year following the purchase.If the credit was for a 2008 purchase, then one-fifteenth of the tax credit amount becomes an additional tax for the next fifteen years of tax filings. If the buyer sells the property before the fifteen years is over, then the remaining tax credit amount not yet repaid becomes fully due in that year.

David Champley has been posting articles about taxation for the past seven years. Additionally, David enjoys blogging about New York City real estate, such as Jamaica Estates real estate and Rego Park real estate.

Source: EzineArticles
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