Last year, a number of my clients qualified for the first-time homebuyer’s tax credit.  One couple came to me not knowing for sure if they qualified.  The couple was not married yet, but was going to purchase a home together before getting married.  One of them qualified as a first-time home buyer, while the other had owned a home in the previous three years.  They needed to know if their home purchase together would qualify.  The answer was yes.  Last year it was only $7,500 and it had to be paid back.  Last year, it was also more limited because the home had to be purchased between April 8th and December 31st.

This year the tax credit is $8,000 and doesn’t have to be paid back.  The credit can be taken on your 2009 income tax return, in some cases it can be credited towards closing costs, or it can be taken on your 2008 income tax return.  I have had several clients amend their 2008 tax return so that they could take advantage of the $8,000 credit immediately.  This is not always the best way to go, but it is an option that should be considered.

The first-time homebuyer’s credit is set to expire on December 1^st of this year.  It is possible that the credit will be extended to next year, but this CPA does not believe that is likely.  The credit is a great way to encourage home purchases which often lead to other purchases which may help stimulate the economy.

Be aware that the IRS is using some sophisticated internet searches to track down some that are claiming the credit, but were not actually eligible for it.  This is s large tax credit and it can be quite tempting to claim even when one is not eligible to claim it.  The IRS is aware of this and is actively reviewing these credits.

Next year, I expect that I will be dealing with a much larger number of clients looking to take the credit.  Most will probably be eligible.  Some may be surprised to find out that they were not eligible.  For this reason I encourage people to get good advice before the purchase and whenever possible do some tax planning before the end of the year.   At year end you won’t be able to change the transaction and may lose out on your valuable tax savings.  Take the time during the year to know if you qualify for the credit.

There are several tests to meet in order to qualify for the credit.  Are you a first-time homebuyer?  If you haven’t owned a home in the last three years you meet the first-time homebuyer test.  The home must be purchased before December 1, 2009.  There are income limits as well a single person will lose some of the deduction if they make more than $75,000 and a married couple will lose some or all of the deduction on income above $150,000.

You can go to the IRS website to answer some of your other questions.

http://www.irs.gov/newsroom/article/0,,id=206293,00.html