Buy a Home, Get a Tax Break- Everything You Need to Know About the First Time Home Buyer Credit

What is it? The First Time Home Buyer credit was included in the Housing and Economic Recovery Act of 2008. The credit was expanded in 2009. Now you can purchase a new home, receive the increased credit, and you don't have to pay it back! Here's the scoop.

The Low-Down

- Applies to purchases that close after April 8, 2008, and before December 1, 2009.
- Applies only to homes used as a taxpayer's principal residence.
- Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.
- Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

How much? The credit is 10% of the purchase price of the home for a maximum amount of $8,000 for 2009 ($7,500 for 2008).

I'm interested, Sign me up! Claim the credit with IRS Form 5405 and file it with your 2008 or 2009 federal income tax return.

The Catch This is the IRS we're talking about, and there's always a catch. If any of the following applies to you, you cannot claim the new credit.

- If you income exceeds the phase-out range. $95,000 or $170,000 filing jointly.

- You buy the home from a close relative (spouse, parent, grandparent, child, grandchild)

- You're a non resident alien

- You sell your home before the year ends

- You are (or were) eligible for the District of Columbia first-time home buyer credit for any taxable year.

- You owned a home any time during the three years prior to purchasing the new home

And Remember you are not required to apply for this credit if you purchase a new home in 2008 on 2009. Don't want to bother with the paperwork? You don't have to. But it might be worth it to save up to $8,000 next year.