How do I apply for the tax credit?
All eligible homebuyers simply claim the credit on their IRS form 1040 tax return. Attach the new form 5405. There is no pre-purchase authorization, application or similar approval process. Print out the form: First Time Home Buyer Credit Form
Luke Mullins from US News and World Report drilled down to the essential six points you need to know about the $8,000 first time homebuyer credit:
1. Eight grand, new buyers: This credit is equivalent to 10 percent of the purchase price of the home* although it's capped at $8,000--and applies only to first-time home buyers and principal residences. But unlike an earlier $7,500 home buyer tax credit, this one does not have to be repaid.
2. First time buyers defined: For the purpose of this legislation, a "first-time home buyer" is someone who hasn't owned a principal residence for three years before buying a house. (The date of purchase is considered the day that the title is transferred.) That means if you've owned a vacation home--but not a principal residence--within the past three years, you would still qualify for the credit.
3. 2009 buyers only: Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit. Anyone who bought a home last year won't be able to take advantage of it.
4. Income limits: The tax credit is subject to income limitations. Single buyers need a modified adjusted gross income of $75,000 or less to qualify for the full credit, that's $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits.
5. Refundable: Because the tax credit is "refundable," qualified buyers can take advantage of it even if they don't have much tax liability.**
6. Recapture: Buyers have to own the home for at least three years in order to capitalize on the credit. If they sell the home before then, they will have to return the credit to the government. (Exceptions will be made in certain cases, such as death or divorce.)
*A home with a purchase price of $80,000 or more qualifies for the entire $8,000 credit. If the house costs less than $80,000, the credit will be 10% of the cost (i.e. A $50,000 home would be $5,000).
**An example of a refundable credit: You owe only $4500 in tax. The IRS would send you a refund for the remainder of the credit, $3500.
See my last post about the newest spin on using the credit as part of your downpayment.