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IRS.gov Website
Rev. date: 01/01/2011


First-time Homebuyer Credit – Purchases Made In 2008

Tax Topic 611
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The Housing and Economic Recovery Act of 2008 provides a new refundable tax credit for individuals who are qualified first-time homebuyers of a principal residence in the United States. For 2008, the credit applies to a principal residence purchased by the taxpayer after April 8, 2008, and on or before December 31, 2008. Homebuyers who qualify are allowed a one-time credit against their income tax for the year of purchase. Unlike some past credits, this one must be repaid over a 15-year period. As a result, the new tax credit works like an interest-free loan. You take the full credit on your 2008 return, and then repay the credit amount in equal payments over 15 years, with no interest charges.
Note: The American Recovery and Reinvestment Act of 2009 and the Worker, Homeownership, and Business Assistance Act of 2009 made changes to the credit for purchases made after December 31, 2008, and before May 1, 2010. For information affecting the credit for 2009 and 2010, see Tax Topic 612.


First-Time Homebuyer

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A "first-time homebuyer" is any individual (and spouse if married) who had no present ownership interest in a qualifying principal residence during the 3-year period ending on the date of purchase of the principal residence for which a first-time homebuyer credit is being claimed.
The following taxpayers do not qualify for the first-time homebuyer credit:


Purchase Price

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The term "purchase price" means the adjusted basis of the principal residence on the date such residence is purchased.


Initial Credit

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The initial credit for qualified buyers is equal to 10% of the purchase price of the principal residence. For 2008, the credit amount cannot exceed $7,500 ($3,750 for married individuals filing a separate return).


Modified Adjusted Gross Income Limit

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The credit phases out for individuals with modified adjusted gross income (MAGI) between $75,000 and $95,000 ($150,000–$170,000 for joint filers) for the year of purchase. The credit is completely phased out for an individual with a MAGI equal to or more than $95,000 ($170,000 for joint filers).
To determine the allowable credit, subtract the limit threshold of $75,000 ($150,000 in the case of a joint return) from your MAGI. Divide the difference by $20,000 to get your reduction ratio. Multiply your initial credit by your reduction ratio to arrive at the credit reduction amount. Subtract the credit reduction amount from the initial credit to arrive at the allowable credit amount.
Example: Facts — Filing Status = Single, MAGI = $80,000, Purchase Price = $80,000, Initial Credit = $7,500 (limited to the lower of $8,000 (10% of Purchase Price) or $7,500).
$80,000 MAGI ........... – ..... $75,000 Limit Threshold .... = .... $5,000 Excess Over Threshold
$..5,000 Excess ........... ÷ ...... $20,000 Max. Excess ....... = .... 25% Reduction Ratio
$..7,500 Initial Credit .. x ..... 25% Reduction Ratio ........ = .... $1,875 Credit Reduction
$..7,500 Initial Credit .. – ..... $1,875 Credit Reduction ... = .... $5,625 Allowable Credit


Recapture of credit

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If a first-time homebuyer credit is allowed to a taxpayer, the taxpayer's income tax is increased by 6 2/3% of the amount of such credit for each taxable year in the 15-year "recapture period." The recapture period begins with the second taxable year following the year of purchase for which the credit is taken.
For example, if a taxpayer is allowed a $7,500 first-time homebuyer credit in 2008, the taxpayer must recapture the credit amount by adding $500 (which is 6 2/3% of $7,500) to his income tax liability each year for 15 years, beginning in 2010.


Claiming the Credit

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The credit is claimed on Form 5405, First-Time Homebuyer Credit, and attached to your 2008 Form 1040.


More Information

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For more detailed information on qualifying for and claiming the first-time homebuyer credit for 2008, refer to the Form 5405 Instructions, the First-Time Homebuyer Credit Information Center article, and additional topics on this subject, on the IRS Website at www.irs.gov.
For information regarding the rules on claiming the First-Time Homebuyer Credit for qualifying purchases made in 2009 and 2010, see Tax Topic 612, First-Time Homebuyer Credit–Purchases made in 2009 and 2010, and news releases, including 2009 IRS News Release (IR-2009-14, Feb. 25, 2009), on the IRS Website at www.irs.gov.