That’s right.  Beginning in the 2008 tax year, qualified taxpayers who purchase a new home for the first time are eligible for a hefty tax credit.  The Housing and Economic Recovery Act of 2008 enabled first-time home buyers to receive a tax credit of up to $7,500 for homes purchased April 9 through December 31, 2008.  The tax credit acts like an interest-free loan and repayment is required to be made over a fifteen-year period – fifteen equal annual payments. 

Video: Federal Housing Tax Credit Explained

The first time home buyer credit was increased to $8,000 in The American Recovery and Reinvestment Act of 2009 for purchases made January 1 through November 30, 2009.  Unlike the tax credit enacted in 2008, the expanded credit does not have to be repaid, as long as the home is not sold within 36 months of the closing on the home.

Focus on the Facts

There are stipulations that need to be met in order for first-time home buyers to qualify for the credit.  Below are some FAQs that address some important specifics.

• Who is eligible?  Taxpayers are eligible who have not owned another home in the previous three years within the United States, whose income does not exceed $75,000 for a single person and $150,000 for a married couple.  This is based on the taxpayer’s Modified Adjusted Gross Income (MAGI).  This income takes into consideration the taxpayer’s AGI, then adds in student loan deductions, foreign housing deductions, IRA contribution deductions, foreign income and higher education expense deductions.
• Amount of credit?  The amount of tax credit allowed is ten percent of the purchase price of the home with a maximum of $7,500 for 2008, and $8,000 for 2009.
• Does my home qualify?  The home purchased must be the taxpayer’s principle residence, and be located in the U.S.  You must have closed on the home April 9, 2008 – July 1, 2009 for the 2008 tax credit, and January 1, 2009 – November 30, 2009 for the 2009 credit.  For new construction, the first date you actually occupy the new home is considered the purchase date.
• Do not owe taxes/exempt – do I qualify?  If you do not owe taxes or you are exempt from filing your taxes, this will not disqualify you from eligibility.  There is no minimum income requirement.  Anyone, regardless of income, who qualifies as a first-time home buyer may file solely to claim the tax credit.
• How do I claim it?  You are not required to claim the credit if you do not want to.  If you do want to claim the credit, however, you will need to file a Form 5405 with either your 2008 or 2009 IRS income tax return, whichever applies.
• Is the credit a tax deduction?  No.  The credit directly reduces what the taxpayer owes to the government.  With the tax credit, if the taxpayer owes $3,000 to the IRS, then $5,000 would be refunded to the taxpayer.  A tax deduction would only diminish the amount of taxed income.  For example, if the taxpayer is in the 15% income bracket, then the taxpayer’s debt to the government would only be reduced by $450.  The taxpayer would still owe $2,550, instead of receiving a refund of $5,000 provided by the tax credit.