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$8,000 Tax Credit Offered to "First-Time" Home Buyers

The American Recovery and Reinvestment Act, signed into law on Feb. 17, 2009, provides many buyers with a tax credit of up to $8,000 if they purchase a home between January 1 and November 31, 2009.  Most news outlets have referred to this credit as available only to first-time homebuyers, but that is not entirely accurate.

The Act does specify that this incentive is for first-time buyers, but it is important to understand how the law defines first-time buyers.  In this case, a first-time homebuyer is someone who had no interest in a principal residence in the prior 3 years.  Clearly, this opens up the tax credit to more than just true first-timers.

The actual amount of the credit is based on the sales price, with the credit equal to 10% of the sales price up to $8,000.  That would mean a home over $80,000 would qualify for the full $8,000.  This new incentive is actually a modified version of the $7,500 tax credit offered as part of the Housing Assistance Tax Act of 2008.  That version required re-payment of the credit, in essence making it an interest-free loan.  However, the new version is not a loan, and it does not requirement re-payment as long as the buyer remains a principal residence for a minimum of 3 years.

For information about claiming the first-time homebuyer tax credit on your tax return, visit the IRS website.  Also, the National Association of Realtors has a good list of frequently asked questions.

This article is a brief summary of this exciting homebuying incentive, but anyone looking to take advantage of it should consult a tax adviser.

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