Of course, by now, you’ve heard all the hoopla about the Tax Credit.  So, what’s all the fuss about? The 2009 First-Time Homebuyer Tax Credit is, well, a gift from the Obama Administration to First-Time Homebuyers. It’s a tax credit in the amount of 10% of the purchase price of your home, up to $8,000.

The best part, if you ask me, is that the credit is fully refundable. See, some tax credits only kick in to the extent of your tax liability, meaning that if you don’t owe any taxes at the end of the year, or you’re already getting a refund, the credit doesn’t do anything for you. This First-Time Homebuyer Tax Credit is fully refundable, so if you were already on track to get a $1,000 refund and you buy a home and are eligible for the full amount of the Credit, you’ll get $9,000 – cash! – back from Uncle Sam Auntie Samantha.

Basic eligibility requirements are as follows:

• You must close escrow on your home between January 1 and November 30, 2009 (if you bought in 2008, a different program is available – here’s the IRS page for the 2008 program, and here’s a chart breaking out the differences between the 2008 and 2009 Tax Credit programs).
• Neither you nor your spouse may have owned a home within 3 years prior to your purchase.
• As long as it’s going to be your primary personal residence, almost any property type can be eligible (e.g., single-family homes, condos, townhomes, and co-ops).

The million dollar $8,000 question is: how can you know how much credit you’ll be eligible for? There are only two factors:

1. The maximum amount of the credit is 10% of the price of your home, up to $8,000, but
2. The actual amount you are eligible for depends on your income. If you earn less than $75,000 per year (single) or $150,000 (married filing jointly), you might qualify for the maximum credit. But you might qualify for a lower amount if you make between $75,000 and $95,000 per year (single) or between $150,000 and $175,000 (married filing jointly).

Did you hear you could use the Tax Credit toward your down payment?

Possible, but not probable, I’m afraid. HUD made an announcement in Spring 2009 to the effect that it would be allowing FHA buyer/borrowers to use their FTH Tax Credit toward their down payment and/or closing costs. The way this works is that HUD authorized the state housing finance agencies to make a bridge loan to first-time homebuyers who are both eligible for the Tax Credit and using FHA financing to fund their purchase. The loan would be in the same amount as the homebuyer was projected to receive from the tax credit, would go to the buyer’s choice of down payment above the 3.5% minimum FHA requirement or closing costs, and would be repaid from the IRS to the housing finance agency.

The glitch? Most states are broke! So only about 11 states actually took HUD up on this offer. Click here for more deets on the program, and click here to find out if your state is one of the chosen few.

When & How Do I Claim it?

Okay, yet another super cool feature of the 2009 Tax Credit is that you can actually choose when to claim it.

Depending on what state you are in, it might be possible to actually use the tax credit toward your down payment and closing costs. More on that here. (Don’t get excited – it’s only available in about 11 states.)

If you want it immediately after you close escrow, you can file an amended 2008 tax return, including IRS Form 5405, and get it ASAP. Most buyers I know do this – they use it to:

• fund their home repairs and get the place in move-in condition (especially if they bought an REO or foreclosure that needs TLC),
• replenish the savings account cushion they depleted to make their down payment, or
• go nuts at Pottery Barn.

It’s a matter of personal preference.

However, if you happen to be in a situation where you made too much in 2008 to claim the full amount of the credit on an amended 2008 return, but you think you’ll make less in 2009 and will be eligible for more of the credit, you might want to wait and claim it on your 2009 tax return.

No matter when you decide to claim the credit, you do so by filing either an amended 2008 tax return or a 2009 tax return along with IRS Form 5405.

For FAQs and reference guides, check out our 2009 First-Time Homebuyer Tax Credit Resource Center.