Realty Insider Blog

Based on some websites I have run into lately, there seems to be some misunderstandings in regards to the $8,000 homebuyer credit.

The confusion may have been fuelled by Mrs. Barbara Corcoran on NBC's Weekend Today last Sunday. On the program she stated to Jenna Wolfe that the $8000 could be used as part of the down payment of a qualifying purchaser.

While creativity is all well and good, this is incorrect. You have to have closed on the home and be the new owner (or have moved into a home you are building) BEFORE you can claim the credit (see section 3 below.)

Don't mean to rehash the rules again here - plenty of places doing that already like http://www.tracyrealestateblog.com/2009/02/first-time-buyers-get-8000-tax-credit.html

But, a couple of clarifications:

1) There is NO MINIMUM DOWNPAYMENT required. In earlier versions of the bill (that was not enacted), there were provisions that a minimum of 5% down payment is required. The bill that was passed in the end did not have such a requirement. So, no problem using FHA and get the credit (after closing...)

2) It is a TAX CREDIT, not a deduction. If you don't pay any taxes and purchase a home, you can get up to $8,000 back in the form of a check. If you closed on the home before January 1, 2009 you may still qualify for the earlier $7,500 tax deferral. However, as it implies, that money has to be paid back over time.

3) The possibility of a sizable check from the United States Treasury has made some get a bit, ehm, “creative”. So, they apparently have filed their taxes, taken the deduction AND received their money BEFORE they purchase the home - even using it as a down payment. NO NO NO - YOU CANNOT DO THAT!!!! Please look at the IRS form and read the very clear instructions. From the 5405 form:

Enter the date you acquired the home. This is the date you purchased it (or the date you first occupied it if you constructed your main home).

(Yes, there are special rules that may allow you to purchase a home this year and get the deduction on your 2008 tax return...)

5) You will have to keep your home at least 3 years.

6) If you make too much money you will not qualify (if you make above $75,000 per individual/$150,000 per couple, your credit will be reduced and quickly goes to $0 as you move up the pay scale.)

There are lots of other rules and exceptions. Contact me for more details.