What You Need to Know About Home Buyer Tax Credits

With the tax filing date getting close, people have been looking for new avenues of saving tax. , . One of the biggest opportunities of saving tax this year is availing the federal homebuyer tax credit.

Taxpayers can claim a credit of up to $8,000 for purchasing a home. However, the scheme is limited to first time home buyers – those who have not owned a house for at least the last three years before such a purchase. For those who are existing homeowners, the tax credit will be limited to $6,500.

In either case, the amount of tax credit cannot exceed 10% of the value of the house. The house should be used as a principal residence and its value should not exceed $800,000. Another restriction is that the home should not be bought from your or your spouse’s relatives.

According to tax lawyers, this is not just an incentive for people willing to buy a new home but will also encourage people to shift from one home to another, especially since the scheme coverage includes even apartments and house boats.

Federal tax analysts point out that the documents of purchase need to be finalized before claiming the credit. Purchases made this year will allow taxpayers to claim credit in either 2009 or 2010 returns. This means that transactions still in process will have to claim credit in the next financial year.

The amendment to the law has also resulted in an increase in income limit for claimants of the credit, with lower limits for homes bought before November 7 of 2009. For purchases before that date, the income limit for individual buyers is $75,000 and $150,000 for married couples. For purchases after that date, income limit has been raised to $125,000 for individual buyers and $225,000 for married couples. Another important fact that you should remember is that if some other tax payer claims you as a dependent, or if you are under 18 years, then you do not qualify for this tax break.

The tax credit requires adequate documentation of the transaction to be submitted with the return. You have to complete IRS Form 5404 and then make the claim on line 67 of the income tax form.

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