Good News for Recent and Potential First-Time Homebuyers If you purchased a home recently or are contemplating purchasing a home in the next few months, you likely know many of the benefits of homeownership, including the possibility for tax savings. What you may not know is that if your purchase falls between April 9, 2008, and November 30, 2009, you could be eligible for a first-time homebuyer tax credit. And if you purchase, or purchased, this year, you don't necessarily have to wait to claim your credit on the 2009 tax return. The provisions for this tax credit are not new. On July 30, 2008, President Bush signed the Housing and Economic Recovery Act of 2008, which provided many protections for homeowners, along with incentives such as the tax credit for new homebuyers. What is new is legislation that enhances the credit. Provisions of the credit The new legislation has resulted in two different sets of rules related to the claim of the tax credit. They are differentiated by date of purchase, as you see below. Summary of Rules for Qualifying First-Time Homebuyers, by Purchase Date When was home purchased? April 9, 2008, through December 31, 2008 January 1, 2009, through November 30, 2009 Maximum credit? $7,500 ($3,750 if married, filing separately) $8,000 ($4,000 if married, filing separately) Does credit have to be paid back? Yes—generally, over 15 years in equal installments No, provided the home remains your principal residence for 36 months Credit is claimed on tax return for what year? 2008 federal income tax return You can elect to treat the purchase of the home as if it occurred on December 31, 2008, claiming credit on 2008 tax return ($8,000 maximum credit limit still applies, even if reported on 2008 return); otherwise, credit is claimed on 2009 tax return. Credit phased out for higher incomes? Yes Yes Do you qualify? Generally, you qualify as a first-time homebuyer if you—and your spouse if you are married—did not own any other principal residence during the three-year period ending on the date of purchase. Unfortunately, the new legislation continues to eliminate the credit for those with higher incomes. The credit is reduced if your modified adjusted gross income (MAGI) exceeds $75,000 ($150,000 if you’re married and filing a joint return) and is completely eliminated if your MAGI reaches $95,000 ($170,000 if you’re married and filing a joint return). Buy today, claim last year? The American Recovery and Reinvestment Act makes it possible for you to elect to report a qualifying home purchase made in 2009 as if it occurred on December 31, 2008 (allowing you to claim the credit on your 2008 federal income tax return). Be sure to speak to your tax professional about how to do this. If you qualify for a tax credit, there are plenty of uses for that extra cash. If you choose to save or invest the money to reap future rewards, consult a financial professional about the appropriate strategy for your goals and lifestyle. However you use the credit amount, there's no doubt that homeownership just got a little sweeter! © 2009 Commonwealth Financial Network