Tax Credit an Incentive for First-Time Homebuyers

February 20, 2009
FOR IMMEDIATE RELEASE

Contact:
Mary Schaefer/Ann Londrigan
217/529-2600

$8,000 Tax Credit One More Incentive for First-Time Homebuyers

Springfield, Ill. — The benefits of buying a home just got better. The latest federal economic stimulus plan includes up to 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.

“This new tax credit is an improvement over last year’s $7,500 credit. Besides being larger, the requirement that buyers eventually repay it over time has been eliminated, making it a true credit for buyers,” says Pat Callan, president of the Illinois Association of REALTORS®. “With low interest rates, a good supply of affordable homes and now the incentive of an even better tax credit, the time has never been better for first-time buyers to make the move.”

The $8,000 tax credit is part of the American Recovery and Reinvestment Act of 2009 signed into law by President Barack Obama on Feb. 17. The National Association of REALTORS® estimates the new tax credit will boost first-time buyer home sales by 300,000 this year.

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 purchase price of the home, up to a maximum credit of $8,000.
Buyers claim the credit on their federal tax return to reduce their tax liability. It is a refundable credit so that if the total tax liability is less than $8,000, the buyer will get a refund check for the balance.
Many taxpayers do not have tax liability that exceeds $8,000. Based on 2008 IRS Tax Tables, a single filer would need $46,600 in taxable income ($58,600 for couples) to have $8,000 in tax liability. Those with less tax liability will in most cases get a refund, in effect getting the full value of the credit.
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 proportionally phased down for those earning more and is not available for those with an income above $95,000 (or $170,000 if filing jointly).
Besides those whose income exceeds the phase-out range, people who buy a home from a close relative, stop using the property as their main home, sell within three years or are nonresident aliens cannot take the credit.
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. This provision is designed to prevent flipping homes to get the credit.
Purchasers who utilize state/local revenue bond financing can now use the credit.
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.

Consult with your REALTOR® or tax advisor and visit www.YourIllinoisHome.com, a consumer site developed by the Illinois Association of REALTORS®, to learn more about the tax credit and state and federal loan programs.

Download flyer: What you should know about the first-time homebuyer tax credit