The latest federal economic stimulus plan includes an $8,000 tax credit for first-time buyers who purchase a home on or after Jan. 1, 2009 and before Dec. 1, 2009. Unlike previous tax credits for first-time buyers, this one doesn’t have to be repaid.

The $8,000 tax credit is part of the American Recovery and Reinvestment Act of 2009.

Details of the tax credit include:

• The temporary credit is only available for home purchases made from Jan. 1, 2009 to before Dec. 1, 2009 and is equal to 10 percent of the cost of the home, up to a maximum credit of $8,000. (For example, a home purchased for $80,000 or more would qualify for the full $8,000 credit while a $70,000 home would only qualify for 10 percent, or $7,000)

• Buyers claim the credit on their federal tax return to reduce their tax liability. If the credit is more than the taxes owed, the buyer will get a refund check for the difference.

• Only first-time homebuyers can take advantage of the tax credit. A first-time buyer is defined under the tax credit as an individual who has not owned a home in the last three years. Eligible properties include anything that will be used as a principal single-family residence – including condos and townhouses.

• There are income guidelines on the credit. Individuals with an adjusted gross income up to $75,000 (or $150,000 if filing jointly) are eligible for the full tax credit. The credit is phased down for those earning more and is not available for those with an income above $95,000 (or $170,000 if filing jointly).

• The new tax credit does not have to be repaid if the buyer stays in the home at least three years. But if the home is sold before that, the entire amount of the credit is recaptured on the sale.

• People who purchased homes under last year’s $7,500 tax credit will still be required to repay that credit to the government over a 15-year period.

The latest economic stimulus package also reinstates higher loan limits on the popular Federal Housing Administration (FHA) loans as well as conforming mortgage loans through Fannie Mae or Freddie Mac until the end of 2009. Loan limits had dropped in some markets at the beginning of 2009, but the economic stimulus plan temporarily raises them, giving people more buying power when looking for a home.   

Source: National Association of REALTORS®