This credit is "refundable," meaning people could receive the money even if they didn't owe taxes. The claimed benefit will be in addition to any tax refund. Example: If a new owner is due a $3000 tax refund and the amount of the claimed benefit is $2800, he/she will get a total tax refund of $5,800.
Eligible borrowers must have no ownership interest in a principal residence during the past 3 years.
If you aren't sure whether you can take advantage of the $8,000 tax incentive, here are some examples to help you better understand the income limits and phase-out structure.
The $8,000 incentive starts phasing out for couples with modified adjusted gross incomes above $150,000 and single filers with modified adjusted gross incomes above $75,000 and is phased out completely at modified adjusted gross incomes of $170,000 for couples and $95,000 for single filers. (See Wikipedia for the definition of Modified Adjusted Gross Income.)
To break down what this phase-out means, the National Association of Homebuilders (NAHB) offers the following examples:
Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out threshold is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000* yields 0.50. The maximum benefit will be reduced by 50%: $8000 X .50 = $4000, the amount of claimed benefit.
Example 2: Assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer's income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000* yields 0.65. The maximum benefit will be reduced 65%, or a 35% benefit: $8,000 X 0.35 = $2800, the amount of claimed benefit.
*$20,000 is the income range: $75,000-95,000 single filer; $150,000-$170,000 joint filers
These examples are general, and borrowers should always consult a tax advisor for guidance relevant to their specific circumstances.
Depending on income levels, people buying in D.C. may find the District's Federal 1st-time Home Buyer credit more beneficial than the 2009 Federal 1st-time Home Buyer credit. You can choose to take either of the two credits, but not both.
(Thanks to Scott Tucker, Coldwell Banker Home Loans, and Rob Ross, George Mason Mortgage, LLC)