First Time Homebuyer Credit Increased to $8,000 in Final Federal Stimulus Bill

According to media reports, the "American Recovery and Reinvestment Act of 2009" modified the first-time homebuyer income tax credit by increasing it from $7,500 to a maximum of $8,000 and eliminating repayment requirements unless the home is sold within three years of purchase. The tax credit applies to homes purchased on or after January 1, 2009 and before December 1, 2009. The full amount of the credit is available to individuals whose adjusted gross income does not exceed $75,000 ($150,000 on joint returns) and who have not owned a principal residence within three years of purchase. The credit reduces or eliminates income tax liability for the year of purchase and any unused amount of the tax credit is refundable to purchaser.

$7,500 First-Time Homebuyer Tax Credit

Are there any first-time homebuyers out there? In a nutshell, the tax credit is available to qualifying first-time homebuyers who purchase a principle residence between April 9, 2008 and July 1, 2009.

Buyers don't have to apply for the credit. They simply claim it on their next federal tax return or, if they want to see savings earlier, adjust their tax withholdings through their employer now in anticipation of the future credit. The credit is not available to individuals earning more than $95,000 or married couples earning more than $170,000.

The tax credit not only reduces a homeowner's tax liability but because it is a refundable credit, homeowners will get a refund check if their liability is lower than the $7,500 credit. Much like an interest-free loan, however, the tax credit must be repaid by the homebuyer over the course of 15 years. Payments begin two years after the credit is claimed and, for someone qualifying for the full credit, will equal $500 annually. If the home is sold before the credit is repaid the seller must pay the outstanding balance.