First Time Home Buyer Stimulus: Are You Ready to Claim Your Tax Credit of Up to $8,000?

Buying your first home is a big, life changing decision regardless of the economic climate. The decision becomes even more bold in an a recession where job cuts are rampant and the housing market has been in a slump for over a year. Nevertheless, if you are confident in your financial future, this is actually the best time to buy a house thanks to the federal government's first time home buyer stimulus package. The stimulus package awards first time home buyers with a tax credit of up to 10% of the purchase price of their home with a ceiling of $8,000. In layman's terms, this is a grant which does not need to be repaid unless you sell the home within the first three years. More specifically, this is a dollar by dollar reduction in taxes owed or an increase in your tax refund. It is also referred to as "refundable" tax credit because you can claim it regardless of your federal income tax liability.

For those who are unfamiliar with this program, here is a quick summary of the key requirements. Firstly, you must be a first time home buyer as required by the current legislation. You meet this definition if you have not purchased a home as your principal residence in the three prior to your current purchase. If you are married, this applies to both you and your spouse. In other words, If either of you do not meet the definition of a first time home buyer, neither of you qualify for the tax credit. A primary residence does not include vacation homes and the specific type of home (e.g. townhouse, condominium, mobile home, etc) does not matter. Secondly, the purchase must take place between January 1st, 2009 and April 30th, 2010. The deadline was extended recently which gives you a few more months to close on your purchase. (The previous deadline was December 1st, 2009). Technically, you have until June 30th, 2010 to complete the sale but a binding agreement must be entered into by April 30th, 2010. Thirdly, you must fall within certain income limits. Single tax payers must not make more than $125,000 annually if the sale occurs after November 6th, 2009 and not more than $75,000 if the sale occurred between January 1st, 2009 and November 6th, 2009. Married couples filing jointly must not make more than $225,000 annually if the sale occurs after November 6th, 2009 and not more than $150,000 if the sale occurred between January 1st, 2009 and November 6th, 2009. The income limits were also raised as part of recent changes. There are other caveats in the legislation but these are the main requirements.

If you feel that you qualify for this tax credit, you are likely wondering how you will claim it. You do so on your federal income tax return. You must first complete IRS Form 5405 to determine the amount of your tax credit. You then enter that amount on line 67 of the 1040 form on your 2009 tax return or line 69 on your 2008 tax return. No other applications or special forms are required. It is as simple as that.

If you are serious about buying your first home by April 30, 2010, the best advice anyone can give you is to plan ahead and plan accordingly, get in touch with mortgage brokers, file your taxes on time, and make the provisions of the first time home buyer stimulus package work for you. Most importantly, do all your due diligence and do not procrastinate! The law may change from time to time so make sure you stay current on all the latest developments. If you do all that, you'll be well on your way to owning the home of your dreams.