How is the Amount of the First Time Home Buyer Tax Credit Determined?

The first time home buyer tax credit is determined by two things: the adjusted gross income of the individual(s) taking the credit, and the purchase price of the home. The adjustments to the law in November 2009 allowed for the extension of the credit, a higher gross adjusted income in order to qualify for the credit, and an additional credit amount for long term home owners who replace their homes. If you trying to decide if taking the first time home buyer tax credit is something you want to do you should know that this is the best time to buy.

What is the maximum credit?

The maximum credit amount is $8,000 for married couples filing jointly and $4,000 for those who are married filing separately. The credit is equal to 10% of the home's purchase price and may be taken in either 2009 or 2010. This means if the home you are interested in purchasing is more than $800,000, you will not receive any kind of credit. There is no phase out for the credit amount as there is with the income amounts. If two people who are unmarried want to purchase a home to live in together, the full credit amount can be claimed. 

What can my adjusted gross income be to claim the credit?

In order to get the full credit, the adjusted gross income or AGI cannot be more than $225,000 for married couples filing jointly (up from $150,000 in the previous version of the tax law) and $125,000 for individuals. If your income is higher than these amounts, you may still get a portion of the credit depending on where your income level is in the phase out limit. The limits are still based on the purchase price of the home. Your Realtor and tax professional will be able to advise you on the amount of the tax credit.

Do I have pay the credit back?

Unlike the 2008 tax credit that does have to be paid back in interest free installments for 15 years, this tax credit does not have to be paid back. This credit is fully refundable, meaning that if your tax liability is less than the credit amount, you will receive the difference in cash on your tax refund. For instance, someone who purchased a house for $300,000 and qualified under the income limits would receive the full $3,000 credit if they did not owe any taxes. 

What about replacing a current home?

For home owners who have been living in the same home for five out of the last 8 years (ending on the purchase date of the new home), a tax credit of $6,500 toward the purchase of a replacement home may be available. This too will be based on the purchase price of the home and the adjusted gross income of the home owners.