As previously stated, the ARRA provides first-time homebuyers of a principal residence the opportunity to receive 10% of the purchase price or up to $8,000 in the form of a tax credit. So, what are the requirements to qualify for this great deal?
Requirement 2: Closing on the residence must occur by June 30, 2010. In other words, if you complete a contract to purchase a home before April 30, 2010, but do not close the deal until after June 30, 2010, you do not qualify for the tax credit. It is therefore important to become pre-approved to purchase your home, and take care of all of the other requirements in purchasing a home to meet the two deadlines.
Requirement 3: Live in Principal Residence for 3 Years
The first time homebuyer must live in the residence for at least 3 years and claim the residence as his or her primary residence. In other words, first-time homebuyers cannot purchase the property as solely an investment property. Further, if you move before the end of 3 years, the IRS will require you to pay back the tax credit.
Requirement 4: You Cannot Have Owned a Home for the Past 3 Years
In order to qualify as a "first-time homebuyer," you must have not owned a home for the past 3 years. Additionally, if you are married and purchase the home, both you and your spouse must have not owned a home for the past 3 years. In other words, the IRS looks at both spouses independently of each other for purposes of the tax credit. However, with unmarried joint purchasers only one person must not have owned a home for the past 3 years.
Requirement 5: Fall Within the Maximum Income Limits
Depending on how much money you make per year, and whether you file as a single taxpayer or jointly as a married couple, you may only receive a reduced tax credit or none at all. To qualify for the full tax credit, first-time homebuyers must make less than $75,000 for singles or $150,000 for couples. However, higher-income buyers may receive a partial credit.
In particular, a single taxpayer who earns an adjusted gross income (i.e. AGI) between $75,000 and $95,000 will only receive a partial tax credit. Single taxpayers who earn $95,000 or more in adjusted gross income do not qualify for any tax credit.
Married taxpayers filing a joint return who earn a combined AGI between $150,000 and $170,000 will only receive a reduced portion of the tax credit. Married taxpayers who earn $170,000 or more in AGI do not qualify for any tax credit.
So, how does the partial tax credit work? Well, the partial tax credit phases out the tax credit proportionately. For example, if you earn $85,000 as a single taxpayer and meet all the other requirements for the tax credit, you’ll receive a $4,000 tax credit. This is because you fall right in the middle of the $75,000 to $95,000 income cap limits and would therefore only receive half of the tax credit (i.e. $4,000).
Requirement 6: Claim the Tax Credit on Your 2010 Income Tax Return
This step is the easiest. We’ll go over this in the next section.
Next, we go over how to claim the tax credit on your 2010 income tax return.