by Irene Warner

Created on: December 21, 2009   Last Updated: December 27, 2009

Nearly 1.4 million Americans have already taken advantage of first time homebuyer credit.

By a home and earn up to $8,000- the Internal Revenue Service defines a first time homeowner as anyone who hasn’t owned a residence in the last three years. If you owe the IRS money this tax credit can help eliminate a tax debt. If you purchase a home in 2009, or 2010 you may be able to take advantage the first time homebuyer credit.

First and foremost—the most important fact about the first time homebuyer credit is the amount $8000.00 available to filers who bought a house after November 6th, 2009 or before April 30th, 2010.

The home has to be purchased in the United States. The home must be FHA-Insured. The home has to be less than $800,000. You cannot be a dependent or a minor child under the age of eighteen to qualify for the credit.  

There has been an increase in the income limitations: 125,000 for single filers and 225,000 for married couples jointly filing an income tax return. Previous guidelines were for the dates January 1st 2009-November 5th 2009: $75,000 for individuals and $150,000 for married couples.

The $8,000 credit is the maximum amount allocated—but the amount a homebuyer is eligible is calculated based on 10% of the cost of the home. A home priced at 500,000 would equal a credit of 5,000. Use the IRS Form 5405 to determine the correct tax credit amount. 

This is a tax credit not a tax deduction. If a taxpayer owes the IRS 10,000 and maximizes the tax credit for $8,000—he would receive a dollar-for-dollar reduction in the amount he owes the Internal Revenue Service. In this example his 10,0000 tax debt would be reduced to $2,000 after the application of the 8,000 tax credit.

This tax credit doesn’t have to be repaid. You cannot purchase the home from a close relative such as parent or grandparent or from your spouse, child, or grandchild.

If you want to claim the credit on your 2009 tax return you cannot e-file your return. The IRS requires a paper return with the settlement sheets showing the purchase home deal has closed. The credit is a part of the stimulus billed passed in February in 2009 and according the National Association of Home Builders the tax break should generate the sale of 160,000 homes.

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