As part of the recently approved economic stimulus package, first time home buyers have a little extra incentive to purchase a home this year. Anyone who buys their first home anytime in 2009 will receive a tax credit equal to up to 10% of the purchase price of the home, capped at $7500. This provision was put into the stimulus plan in an effort to get home sales moving again, and is a great incentive for people thinking of purchasing their first home.

This is a tax credit, not a tax rebate, so it is basically a gift to the taxpayer from the government that does not need to be repaid for a home purchased before December 1, 2009. If a first time homebuyer purchased their first home between April 9, 2008 and December 31, 2008, they are eligible for a tax rebate as opposed to a tax credit. The amount of the rebate is the same in either case, but homebuyers who purchased their home prior to January 1 will have to repay the rebated amount over the next 15 years on their taxes.

This tax break is subject to income limitations like most other aspects of the stimulus plan. They begin to phase out for taxpayers with an income of more than $75,000 (individual) or $150,000 (joint). They disappear completely once your income reaches $95,000 and $170,000 respectively. You are considered a first time homebuyer if you haven’t owned a primary residence in the last three years, and you only qualify if you plan to use the home as your primary residence.

One of the most important things that you should understand if you’re buying, or have recently bought your first home, is that you don’t have to wait until 2010 to redeem your tax credit. It’s possible to claim your credit on your 2008 or 2009 taxes. If you’ve already filed, it’s possible to amend your return to adjust for the purchase of your fist home.

Some people who plan to take advantage of this tax credit are currently reducing the amount withheld from their paychecks if they plan to purchase a home before the November 30^th deadline. This puts more money in your pocket from each paycheck to do other things with knowing that you’ll be getting a big tax credit. You could even use the money you save this way to increase your down payment on that first home, reducing your monthly payments in the future.

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Tags: first time homebuyer, stimulus, tax credit

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