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On Tuesday, February 17th, 2009, President Obama signed the American Recovery and Reinvestment Act authorizing a $8,000 federal tax credit for qualified first-time home buyers who purchase between January 1st , 2009 and December 1st, 2009. The taxpayer's Modified Adjusted Gross Income (MAGI) cannot exceed $75,000 for single taxpayers and $150,000 for married taxpayers. There are some partial tax credits available if the MAGI exceeds this limit.
A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means a taxpayer who owes $8,000 in federal income taxes and receives a $8,000 tax credit, would owe nothing to the IRS.
The tax credit is refundable. Meaning the home buyer's credit can be claimed even if the taxpayer has little or no federal income tax liability to offset the credit. Typically, this involves the government sending the taxpayer a refund check for a portion or even all of the amount of the refundable tax credit.
A first-time home buyer is classified as a buyer who has not owned a principal residence during the 3-year period prior to purchase. For married taxpayers, the law tests the home history of both the home buyer and his/her spouses. If one does not qualify, then the married couple does not qualify.
If the taxpayer lives in the home as their principal residence for a minimum of three years, then they do not have to make a repayment of the $8,000. If the taxpayer fails to live in the property for the 3-year period, the entire amount of the tax credit is recaptured upcoming sale of the property.
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