Although we still have a long way to go until we see our way through the recession, Reuters recently reported that home sales have risen for the past three straight months. As a result, it might be the right time for first-time homebuyers to dip their foot in the pool. And don’t let a house like this discourage you because there is a major incentive to purchase a home this year: the first-time homebuyer tax credit (the "Credit").
The Credit generally allows qualifying first-time homebuyers to claim a federal income tax credit that is equal to the lesser of ten percent of the purchase price or $8,000 depending on your filing status. However, the purchase must occur before December 1, 2009. Unlike the 2008 version of the Credit, which was essentially a fifteen year interest-free loan, the 2009 Credit does not have to be repaid as long as the house is not resold for at least three years. The Credit does not apply to houses located outside of the United States.
Even if you don’t think you are a "first-time homeowner", you may be for purposes of the Credit. A person is generally a qualified first-time homebuyer if they have not owned and used another personal residence at any time during the three years prior to the date of the purchase. Thus, if you previously owned a residence but sold it more than three years ago, you can qualify as a first-timer. Additionally, if you owned a home within the last three years but did not use it as your residence, you could still qualify. However, for married couples, both spouses must qualify regardless of their filing status.
Tax credits in general are preferable to deductions because they apply directly to your income taxes and do not merely reduce your taxable income. Additionally, even if you have no taxable income but otherwise qualify for the Credit, you will be able to file a return for the sole purpose of claiming the credit as your refund.