The American Recovery and Reinvestment Act, signed into law on Feb. 17, 2009, provides many buyers with a tax credit of up to $8,000 if they purchase a home between January 1 and November 31, 2009. Most news outlets have referred to this credit as available only to first-time homebuyers, but that is not entirely accurate.
The Act does specify that this incentive is for first-time buyers, but it is important to understand how the law defines first-time buyers. In this case, a first-time homebuyer is someone who had no interest in a principal residence in the prior 3 years. Clearly, this opens up the tax credit to more than just true first-timers.
The actual amount of the credit is based on the sales price, with the credit equal to 10% of the sales price up to $8,000. That would mean a home over $80,000 would qualify for the full $8,000. This new incentive is actually a modified version of the $7,500 tax credit offered as part of the Housing Assistance Tax Act of 2008. That version required re-payment of the credit, in essence making it an interest-free loan. However, the new version is not a loan, and it does not requirement re-payment as long as the buyer remains a principal residence for a minimum of 3 years.
For information about claiming the first-time homebuyer tax credit on your tax return, visit the IRS website. Also, the National Association of Realtors has a good list of frequently asked questions.
This article is a brief summary of this exciting homebuying incentive, but anyone looking to take advantage of it should consult a tax adviser.