In an attempt to help stimulate the housing market, the Federal government recently enacted a new Home Buyer Tax Credit for first-time home buyers who purchase a principal residence. The tax credit is equal to 10% of a home’s purchase amount or $8,000, whichever is less.

A tax credit is direct dollar-for-dollar reduction in what a taxpayer owes in taxes. A person who owes $8,000 in income taxes and is eligible for the full $8,000 home buyer’s tax credit would owe nothing in federal taxes.

In order to qualify for the tax credit, the buyer has to meet the following general parameters:

• Be a First-Time Home Buyer: The law defines this as a buyer who has not had ownership of any principal residence in the past three years.
• Buy a Principal Residence: Any home that will be used as a principal place of residence will qualify, including condos, newly constructed homes and manufactured homes. The home will also have to be purchased by December 1, 2009. (the tax credit is also retroactive to purchases made on or after Jan. 1, 2009)
• Meet Certain Income Thresholds: In order to qualify for the full $8,000 tax credit, a single taxpayer cannot have a modified adjusted gross income (MAGI) that is greater than $75,000. For married taxpayers who are filing a joint return, the MAGI limit is $150,000. For those with higher incomes than these thresholds, the tax credit is reduced and is phased out completely for single taxpayers with a MAGI of $95,000 or more, and for married taxpayers with a MAGI of $170,000 or higher.

The District of Columbia also offers a first-time home buyer tax credit, but a taxpayer can only choose this local tax credit or the Federal tax credit.

Home buyers are becoming more aware of this tax credit and are using it to minimize to offset the costs of a home’s down payment. Sellers should also be aware of this tax credit, so that they can relay this important information to prospective buyers.

For more information about the home buyer’s tax credit, ask your accountant or visit http://www.federalhousingtaxcredit.com