Back in February, we wrote a post about the (then) proposed $15,000 Home buyer Tax Credit. Although we were all hopeful that it would come to fruition at that dollar amount, by the time all was said and done it came through Congress but at a reduced level of $8000.

The good news is, it did come to fruition! The credit was increased from last year’s limit of $7500, and it is now a true tax credit with no requirement for repayment. The credit applies to purchases for first time homebuyers on or after January 1, 2009, through December 1, 2009.

As all this legislation can be overwhelming to weed through, here is a list of FAQ’s to help clarify this Home buyer tax credit:

What is the $8000 Tax Credit for 2009? It is available for first-time homebuyers for the purchase of a principle residence between January 1, 2009 and December 1, 2009. Any home purchased for $80,000 or more will qualify for the full amount, and homes less than this value will be eligible for 10% of the purchase price.

Who is Eligible? Any first-time homebuyer, which is defined as a buyer who has had no ownership interest in a home for the past three years from the date of the 2009 purchase.

Are There any Other Restrictions? There is also a limit on the amount income that a purchaser claims in the tax year that the credit is applied for. Single (or Head of Household) filers are eligible if their income is less than $75,000; Married couples filing jointly must not exceed $150,000.

Explain how the Tax Credit Works. A tax credit directly reduces your income tax liability dollar-for-dollar. Thus, at the end of the year when you complete your income tax return and figure out your total tax owed, you will apply this tax credit to reduce the total tax bill.

What if Your Tax Liability is less than the Credit Due? You will be eligible for “refundable” credit- the IRS will provide a check to the taxpayer for the difference. Sweet!

Are there any Financing  Requirements or Restrictions? No, the majority of financing arrangements are acceptable and will not affect eligibility for the tax credit.

How does an Individual Apply for the Credit? All eligible purchasers simply claim the credit on their IRS Form 1040 tax return.  The credit will be reflected using a new Form 5405, which like all the forms and publications are available at www.irs.gov.

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