http://www.federalhousingtaxcredit.com/faq.php#1 so finally found a…: wev

wev

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Mar 03, 2009 19:09

http://www.federalhousingtaxcredit.com/faq.php#1

so finally found a page on line that was some what in english explaining the tax credit about home buying for the first time.

and aside from the really dry stuff about income levels and qualifications (illegal aliens can claim a u.s. tax credit....wait..how do you buy a house if you are an illegal alien?) and a bunch of really boring stuff about how it works, and who can use it and if you can use part of it..what kinda new house...etc. etc. etc...... the last couple of q and a's are most useful. this credit is a credit you pay back. at the rate of $500 a year. makes me wonder exactly why the irs is getting involved with no interest loans.

Frequently Asked Questions
About the First-Time Home Buyer Tax Credit

TheHousing and Economic Recovery Act of 2008 authorizes a $7,500 taxcredit for qualified first-time home buyers purchasing homes on orafter April 9, 2008 and before January 1, 2009. The following questionsand answers provide basic information about the tax credit. If you havemore specific questions, we strongly encourage you to consult aqualified tax advisor or legal professional about your unique situation.

Who is eligible to claim the $7,500 tax credit?
Firsttime home buyers purchasing any kind of home-new or resale-are eligiblefor the tax credit. To qualify for the tax credit, a home purchase mustoccur on or after April 9, 2008 and before January 1, 2009. For thepurposes of the tax credit, the purchase date is the date when closingoccurs.
What is the definition of a first-time home buyer?
Thelaw defines "first-time home buyer" as a buyer who has not owned aprincipal residence during the three-year period prior to the purchase.For married taxpayers, the law tests the homeownership history of boththe home buyer and his/her spouse.

For example, if you have notowned a home in the past three years but your spouse has owned aprincipal residence, neither you nor your spouse qualifies for thefirst-time home buyer tax credit. However, unmarried joint purchasersmay allocate the credit amount to any buyer who qualifies as afirst-time buyer, such as may occur if a parent jointly purchases ahome with a son or daughter. Ownership of a vacation home or rentalproperty not used as a principal residence does not disqualify a buyeras a first-time home buyer.
Are there any income limits for claiming the tax credit?
Yes. The income limit for single taxpayers is $75,000; thelimit is $150,000 for married taxpayers filing a joint return. The taxcredit amount is reduced for buyers with a modified adjusted grossincome (MAGI) of more than $75,000 for single taxpayers and $150,000for married taxpayers filing a joint return. The tax credit amount isreduced to zero for taxpayers with a MAGI of more than $95,000 (single)or $170,000 (married) and is reduced proportionally for taxpayers withMAGIs between these amounts.
How do I claim the tax credit? Do I need to complete a form or application?
Participatingin the tax credit program is easy. You claim the tax credit on yourfederal income tax return. No other applications or forms are required.No pre-approval is necessary; however, prospective home buyers willwant to be sure they qualify for the credit under the income limits andfirst-time home buyer tests.
What types of homes will qualify for the tax credit?
Anyhome purchased by an eligible first-time home buyer will qualify forthe credit, provided that the home will be used as a principalresidence and the buyer has not owned a home in the previous threeyears. This includes single-family detached homes, attached homes liketownhouses and condominiums, manufactured homes (also known as mobilehomes) and houseboats.
Insteadof buying a new home from a home builder, I have hired a contractor toconstruct a home on a lot that I already own. Do I still qualify forthe tax credit?
Yes. Forthe purposes of the home buyer tax credit, a principal residence thatis constructed by the home owner is treated by the tax code as havingbeen "purchased" on the date the owner first occupies the house. Inthis situation, the date of first occupancy must be on or after April9, 2008 and before January 1, 2009.

In contrast, fornewly-constructed homes bought from a home builder, eligibility for thetax credit is determined by the settlement date.
What is "modified adjusted gross income"?
Modifiedadjusted gross income or MAGI is defined by the IRS. To find it, ataxpayer must first determine "adjusted gross income" or AGI. AGI istotal income for a year minus certain deductions (known as"adjustments" or "above-the-line deductions"), but before itemizeddeductions from Schedule A or personal exemptions are subtracted. OnForms 1040 and 1040A, AGI is the last number on page 1 and first numberon page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of2007). Note that AGI includes all forms of income including wages,salaries, interest income, dividends and capital gains.

Todetermine modified adjusted gross income (MAGI), add to AGI certainamounts such as foreign income, foreign-housing deductions,student-loan deductions, IRA-contribution deductions and deductions forhigher-education costs.
If my modified adjusted gross income (MAGI) is above the limit, do I qualify for any tax credit?
Possibly.It depends on your income. Partial credits of less than $7,500 areavailable for some taxpayers whose MAGI exceeds the phaseout limits.The credit becomes totally unavailable for individual taxpayers with amodified adjusted gross income of more than $95,000 and for marriedtaxpayers filing joint returns with an AGI of more than $170,000.
Can you give me an example of how the partial tax credit is determined?
Justas an example, assume that a married couple has a modified adjustedgross income of $160,000. The applicable phaseout to qualify for thetax credit is $150,000, and the couple is $10,000 over this amount.Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0,the result is 0.5. To determine the amount of the partial first-timehome buyer tax credit that is available to this couple, multiply $7,500by 0.5. The result is $3,750.

Here’s another example: assumethat an individual home buyer has a modified adjusted gross income of$88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing$13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, theresult is 0.35. Multiplying $7,500 by 0.35 shows that the buyer iseligible for a partial tax credit of $2,625.

Please rememberthat these examples are intended to provide a general idea of how thetax credit might be applied in different circumstances. You shouldalways consult your tax advisor for information relating to yourspecific circumstances.
Does the credit amount differ based on tax filing status?
No.The credit is in general equal to $7,500 for a qualified home purchase,whether the home buyer files taxes as a single or married taxpayer.However, if a household files their taxes as "married filingseparately" (in effect, filing two returns), then the credit of $7,500is claimed as a $3,750 credit on each of the two returns.
Arethere any circumstances for which buyers whose incomes are at or belowthe $75,000 limit for singles or the $150,000 limit for marriedtaxpayers might not be able to claim the full $7,500 tax credit?
Ingeneral, the tax credit is equal to 10% of the qualified home purchaseprice, but the credit amount is capped or limited at $7,500. For mostfirst-time home buyers, this means the credit will equal $7,500. Forhome buyers purchasing a home priced less than $75,000, the credit willequal 10% of the purchase price.
I heard that the tax credit is refundable. What does that mean?
Thefact that the credit is refundable means that the home buyer credit canbe claimed even if the taxpayer has little or no federal income taxliability to offset. Typically this involves the government sending thetaxpayer a check for a portion or even all of the amount of therefundable tax credit.

For example, if a qualified home buyerexpected, notwithstanding the tax credit, federal income tax liabilityof $5,000 and had tax withholding of $4,000 for the year, then withoutthe tax credit the taxpayer would owe the IRS $1,000 on April 15th.Suppose now that taxpayer qualified for the $7,500 home buyer taxcredit. As a result, the taxpayer would receive a check for $6,500($7,500 minus the $1,000 owed).
What is the difference between a tax credit and a tax deduction?
Atax credit is a dollar-for-dollar reduction in what the taxpayer owes.That means that a taxpayer who owes $7,500 in income taxes and whoreceives a $7,500 tax credit would owe nothing to the IRS.

A taxdeduction is subtracted from the amount of income that is taxed. Usingthe same example, assume the taxpayer is in the 15 percent tax bracketand owes $7,500 in income taxes. If the taxpayer receives a $7,500deduction, the taxpayer’s tax liability would be reduced by $1,125 (15percent of $7,500), or lowered from $7,500 to $6,375.
Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program?
No. The tax credit cannot be combined with the MRB home buyer program.
I live in the District of Columbia. Can I claim both the DC first-time home buyer credit and this new credit?
No. You can claim only one.
I am not a U.S. citizen. Can I claim the tax credit?
Maybe.Anyone who is not a nonresident alien (as defined by the IRS), who hasnot owned a principal residence in the previous three years and whomeets the income limits test may claim the tax credit for a qualifiedhome purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.
Does the credit have to be paid back to the government? If so, what are the payback provisions?
Yes,the tax credit must be repaid. Home buyers will be required to repaythe credit to the government, without interest, over 15 years or whenthey sell the house, if there is sufficient capital gain from the sale.For example, a home buyer claiming a $7,500 credit would repay thecredit at $500 per year. The home owner does not have to begin makingrepayments on the credit until two years after the credit is claimed.So if the tax credit is claimed on the 2008 tax return, a $500 paymentis not due until the 2010 tax return is filed. If the home owner soldthe home, then the remaining credit amount would be due from the profiton the home sale. If there was insufficient profit, then the remainingcredit payback would be forgiven.
Why must the money be repaid?
Congress’sintent was to provide as large a financial resource as possible forhome buyers in the year that they purchase a home. In addition tohelping first-time home buyers, this will maximize the stimulus for thehousing market and the economy, will help stabilize home prices, andwill increase home sales. The repayment requirement reduces the effecton the Federal Treasury and assumes that home buyers will benefit fromstabilized and, eventually, increasing future housing prices.
Becausethe money must be repaid, isn’t the first-time home buyer programreally a zero-interest loan rather than a traditional tax credit?
Yes.Because the tax credit must be repaid, it operates like a zero-interestloan. Assuming an interest rate of 7%, that means the home owner savesup to $4,200 in interest payments over the 15-year repayment period.Compared to $7,500 financed through a 30-year mortgage with a 7%interest rate, the home buyer tax credit saves home buyers over $8,100in interest payments. The program is called a tax credit because itoperates through the tax code and is administered by the IRS. Also likea tax credit, it provides a reduction in tax liability in the year itis claimed.