First Home Buyer Tax Credit
The first home buyer tax credit expired in 2011, and no extensions are currently proposed in Congress. The tax credit was designed by the United States Congress as a way to stimulate America’s staggering economy since the 2007 recession.
As part of President Barack Obama’s 2009 economic stimulus package, first time home buyers received an $8,000 incentive to motivate home purchases and jump-start the housing market. Here is an overview of the first time buyer tax credit.
2009 Stimulus Package
In February 2009, President Obama signed into law an economic recovery package of nearly $800 million. The stimulus plan included a first time home owner’s tax credit of $8,000. This was scaled back from the original $15,000 proposal in order to gain Congressional support for the bill’s approval.
The recovery package increased the first home buyer tax credit by $500, but only for qualifying home purchases between January 1, 2009 and December 1, 2009. First time buyers who purchased a home in 2008 were covered by an existing $7,500 home owner credit.
Tax Credit And Income Level
In addition to the scaled-back tax credit for first time buyers, Congress dropped another proposal, too. The United States Senate originally proposed a tax credit available to anyone, regardless of their income.
The approved bill set adjusted gross income levels for singles and married couples. To meet eligibility requirements, a buyers modified adjusted gross income (MAGI) must be less than $95,000, or $140,000 for married couples filing jointly. The phase-out of credit began when a buyer’s income exceeded $75,000 for singles or $150,000 for married couples. That means the amount of credit decreased after those limits.
Furthermore, buyers who qualified for the 2009 first home buyer credit, but who sell their home within three years, will forfeit the tax credit, or pay it back if it was already claimed.
Tax Credit And Down Payment
First time home buyers could use the $8,000 tax credit for down payments and other upfront costs if their loan was backed by the Federal Housing Administration (FHA). But buyers could not claim the credit until they closed on their homes, often waiting weeks or months to receive the money after filing their tax returns.
To provide buyers with upfront cash, the FHA allowed private lenders, state agencies, and nonprofit organizations to offer loans secured by the tax credit. According to the Department of Housing and Urban Development (HUD), this allowed tens of thousands of families to buy their first home.
2010 Tax Credit Extension
In January 2010, President Obama signed a bill that extended the $8,000 tax credit through April 2010. However, the new provisions were not retroactive. The credit was made available to buyers with a MAGI of up to $125,000 or $250,000 for married couples filing jointly. The higher income limits were only for homes purchased after November 6, 2009.
Another new provision was a $6,500 tax credit for current homeowners looking for a replacement primary residence. The buyers had to meet the qualifications of being a “long term resident” of their home for at least five consecutive years, and the credit only applied to purchases after November 6, 2009.
The last extension was granted in the summer of 2010. First time home buyers now had until the end of September 2010 to close on their home purchases and still qualify for the tax credit.