Attention First Time Home Buyers in Frisco Texas: Details about the $8000 Tax Credit (Economic Stimulus Package)

By now you have probably read or have written a post about the $8000 First Time Home Buyer Tax Credit (Economic Stimulus Package).  I wanted to take some time to provide some common questions and answers about this Tax Credit.  You probably want to read this if you are a First-Time Homebuyer or an agent that works with First-Time Homebuyers.  The below Q&A pertains to any new home buyer whether you live in the Frisco Texas area or anywhere else within the United States.

First, the basics about the program that you may have read before:

  • First-Time Home Buyers that purchased between 1/1/09 and 11/30/09
  • The Tax Credit is equal to 10% of the purchase price, not to exceed $8,000
  • Principal Residence only (includes SFR, Condos, Co-ops, and Townhomes)
  • Refundable Credit which means any unused credit will be issued to you in a check.
  • Annual Income not to exceed $75K (single) or $150K (couple).
  • No Repayment due for the $8,000 – True Tax Credit (as long as home is kept for at least 3 years. If home is sold within 3 years, repayment for tax credit is required)

Now for the things you may not have read about:

What defines a First-Time Home Buyer?  Buyers who purchase any home which is utilized as their primary residence (new or resale) between January 1st and November 30th.  As defined, the Frist-Time Home Buyer could not have owned a primary residence within the last 3 years.  For married couples, if one of the spouses has owned property within the last 3 years, they are both disqualified.  Ownership of a vacation home or rental property not used a Principal Residence does not disqualify a buyer as a first-time homeowner.

Income Clarification:  What is the Income Limitation to claim the Tax Credit?  The homeowners annual income can not exceed $75,000 to receive the full tax credit or $150,000 per couple to receive the full tax credit.  Are you automatically disqualified because your income is above these limits mentioned?  You are still qualified for the reduced refund if your MAGI (modified adjusted gross income) is above $75,000 (single) or $150,000 (married), but not above $95,000 (single) or $170,000 (married).  If your income is above $95,000 (single) or $170,000 (married) then you no longer qualify.  What is MAGI?  This term is defined by the IRS and is not your Adjusted Gross Income (AGI).  It’s a calculation of your AGI and personalized deductions.  It is best to seek an accountant for a clear understanding.

How is this tax credit different from the tax credit originally passed in July 2008?  The biggest difference is that this is a true tax CREDIT, not a deduction.  It is also no longer a loan, which means you will not need to pay it back over a period of time.  The only exception for this credit is that you must keep your home for at least 3 years.  If you sell your home before your third year, the refund would need to be paid back.

What does it mean that the tax credit is ‘refundable’?  Plain and simple, this is a credit and not a loan nor a deduction.  Any unused portion from your 2008 or 2009 taxes will be refunded to you in the form of a check or wire.  For example, if you owe the IRS $5000 in taxes, and your expected tax credit is $8000 then your net difference of $3000 will be refunded to you.  If you owe $10,000 in taxes, then the $8000 will be applied so that you only have to pay the IRS $2000.  And finally, if you are to receive a credit from your taxes of $3000, then the $8000 will be added to it for a total credit of $11,000.

What type of home qualifies?  Any home used as a primary residence.  This obviously includes single-family residence, but also includes attached homes like townhomes, condo’s, manufactured homes, and even houseboats.

I am building a home. Would I still qualify for the credit?  If you purchase the home from a home builder, then the ‘settlement’ date on the contract must be between 1/1/09 and 11/30/09.  If you have hired a contractor to build your home, then the tax code defines the purchase date as the 1st date the homebuyer occupies the home.  This date must be between 1/1/09 and 11/30/09.

My home was purchase in 2008, would I still qualify for this tax credit?  Not if your home was purchased prior to 12/31/08.  However, if you purchased between 4/9/08 and 12/31/08 then you would possibly qualify for the $7500 tax credit which was approved during the Bush Administration.

How do I claim the $8000 first-time home buyer tax credit?  The claim is made on your federal income tax return.  The first step is to complete form 5406 which helps determine the amount of your credit.  The amount is then placed on line 69 of the 1040 form.  No other approval is necessary, however, you will want to be sure you qualify based on the First Time Home Buyer guidelines and Income limitations.

What if I already filed my 2008 taxes and claimed the $7500 tax credit?  Home buyers need to file an amended return on a 1040X form.  It’s always best to consult an accountant prior to filing your return.

Do I have to claim the tax credit in 2009 or can I claim it in 2008?  The law was written in a way that homebuyers could claim this credit in either year.  Someone with an adjustable income may ‘elect’ to claim the credit in 2008 because they know their current MAGI for 2008 where as in 2009 the MAGI may be above allowable limits.  If the 2008 tax returns have been filed, see an accountant for further assistance and suggestions.

Does a homeowner have to wait to file their 2009 tax returns in order to utilize their tax credit?  Yes.  There is not a current program which allows you to utilize this credit prior to filing your tax returns.  Some homeowners may choose to drop their deductions within their paychecks knowing a credit will be received.  My suggestion is to wait for the full return at the end of the year or file an amended 2008 tax return.  Should you choose to adjust your deductions, consultant an accountant.

There are a few more items that could disqualify a First-Time Home Buyer from this tax credit:

  • Income exceeds the MAGI of $95,000 (single) and $170,000 (married)
  • Homebuyer stop using the home as a primary residence
  • Non-resident alien (see the definition in the IRS Publication 519)
  • If you have utilized any state or city bond program
  • If the homeowner sells the home before the completion of the third year.
  • Homebuyer purchase the home from a close relative including but not limited to: parent, spouse, grandparent, child, or grandchild (arms length transaction)

Should you have any additional questions about this program, feel free to contact me directly by phone or email.  I’ll be happy to answer any questions you may have.


Are you are looking to buy or sell a home in Frisco or another city in North Texas?  Perhaps you love your home but would be interested in refinancing to a lower interest rate?  If so, then I can help.  I am a licensed Mortgage Consultant located in North Texas with over 15 years experience in the industry.  I can help you get pre-approved for your new home loan in Texas and even suggest some very knowledgeable and professional Real Estate Agents in your area of choice.  If you are available to talk, I am available to listen.  Give me a call any time or visit my website for more details.

John Cannata  Reliant Mortgage  p# 214.545.5604

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Copyright 2009 by John Cannata Attention First Time Home Buyers in Frisco Texas: Details about the $8000 Tax Credit (Economic Stimulus Package)

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