American Recovery and Reinvestment Act of 2009
First-Time Home Buyer Tax Credit


1.Who is eligible to claim the tax credit?
First time home buyers purchasing any kind of home—new or resale—are eligible for the tax
credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and
before December 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs. If the purchase happened before December 31, 2008 please see #17.


2. What is the maximum tax credit?
The maximum credit is up to $8,000 but no more than 10% of the purchase price of the home, the credit will be for the lesser of the two.

3. What is the definition of a first-time home buyer?
The law defines "first-time home buyer" as a buyer who has NOT owned a principal residence
during the three-year period prior to the purchase. The tax credit is for home buyers (either spouse
if filing jointly) who meet this guideline. Ownership of a vacation home or rental property not
used as a principal residence does not disqualify a buyer as a first-time home buyer.

4. How do I claim the tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax
return. No other applications or forms are required. No pre-approval is necessary; however,
prospective home buyers will want to be sure they qualify for the credit under the income limits
(SEE #7) and first-time home buyer tests explained above.

5. Does the credit need to be repaid?
There is NO recapture or repayment clause IF the home is owned for at least 36 months before
being sold.


6. What types of homes will qualify for the tax credit?
Any home purchased by an eligible first-time home buyer will qualify for the credit, provided that
the home will be used as a principal residence and the buyer has not owned a home in the previous three years. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.


7. Instead of buying a new home from a home builder, I have hired a contractor to construct a
home on a lot that I already own. Do I still qualify for the tax credit? Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and before December 31, 2009. In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date (closing).

California Dept. of Real Estate, Broker #01050210. Please consult a licensed legal, tax and/or investment professional to obtain laws and qualifications as they pertain to your specific situation. The information provided is not intended or written to be used as legal, tax and/or investment advice. Loan approval is not guaranteed and is subject to verification of specific information that is requested at time of application. Specific programs and rates may not be available for all borrowers.


8. How do I qualify and what is "modified adjusted gross income?”
To qualify for the full tax credit, married couples’ modified adjusted gross income (MAGI) should
be under $150,000 and single filers’ MAGI should be less than $75,000. Partial tax credits may be available for married couples with MAGI incomes over $150,000 but under $170,000 and single filers with incomes over $75000 but under $95,000. Modified adjusted gross income or MAGI is defined by the IRS. To find it, a taxpayer must first determine "adjusted gross income" or AGI. AGI is total income for a year minus certain deductions (known as "adjustments" or "above-the-line deductions"), but before itemized deductions from Schedule A or personal exemptions are subtracted. Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains. To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.


9. Can you give me an example of how the partial tax credit is determined? Just as an example, assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000. Here’s another example: assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.


**Please remember that these examples are intended to provide a general idea of how the tax
credit might be applied in different circumstances. You should always consult your tax advisor for
information relating to your specific circumstances.


10. Does the credit amount differ based on tax filing status?
No. The credit is in general equal to $8,000 for a qualified home purchase, whether the home
buyer files taxes as a single or married taxpayer. However, if a household files their taxes as
"married filing separately" (in effect, filing two returns) they would each claim 5% of the home
purchase, therefore the credit of $8,000 is claimed as a $4,000 credit on each of the two returns.

11. I heard that the tax credit is refundable. What does that mean?
The fact that the credit is refundable means that the home buyer credit can be claimed even if the
taxpayer has little or no federal income tax liability to offset. Typically this involves the
government sending the taxpayer a check for a portion or even all of the amount of the refundable
tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income
tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit
the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the
$8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000
minus the $1,000 owed).

12. What is the difference between a tax credit and a tax deduction?
A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer
who owes $8,000 in income taxes and who receives a $8,000 tax credit would owe nothing to the
IRS. California Dept. of Real Estate, Broker #01050210


Please consult a licensed legal, tax and/or investment professional to obtain laws and qualifications as they pertain to your specific situation. The information provided is not intended or written to be used as legal, tax and/or investment advice. Loan approval is not guaranteed and is subject to verification of specific information that is requested at time of application.
Specific programs and rates may not be available for all borrowers. A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives a $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,2 00 (15 percent of $8,000), or lowered from $8,000 to $6,800.

13. I am not a U.S. citizen. Can I claim the tax credit?
Maybe. Anyone who is not a nonresident alien (as defined by the IRS), who has not owned a
principal residence in the previous three years and who meets the income limits test may claim the tax credit for a qualified home purchase. The IRS provides a definition of "nonresident alien" in IRS Publication 519.

14. If I am qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return? Yes. The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount. The law allows taxpayers to elect to treat qualified 2009 purchases as a 2008 purchase so the can receive the tax credit on their 2008 tax returns.


15. For a home purchase in 2009, can I choose whether to treat the purchase as occurring in
2008 or 2009, depending on in which year my credit amount is the largest?
Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009
and a larger credit would be available using the 2008 MAGI amounts, then you can choose the
year that yields the largest credit amount.

16. I plan to buy a home before December 31, 2009, with this credit I will owe less in income
taxes. Is there any way to adjust my income now so I can save for a down payment?
Yes. Prospective home buyers who believe they qualify for the tax credit are permitted to reduce
their income tax withholding. Reducing tax withholding (up to the amount of the credit) will
enable the future home buyer to accumulate cash by raising his/her take home pay. This money
can then be applied to the down payment. Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919
contains rules and guidelines for income tax withholding. Prospective home buyers should note
that if income tax withholding is reduced and the tax credit qualified purchase does not occur, then the individual would be liable for repayment to the IRS of income tax and possible interest
charges and penalties. The provides a way for a home buyer to access the money allocable to the credit sooner than waiting


17. What if I purchased before December 31, 2008, does the new law apply to me?
Unfortunately the answer is no. If the home was purchased on or before December 31, 2008 home buyers will fall under the previous stimulus guidelines with a maximum credit of $7,500 or 10% of the purchase price, whichever is less. The home buyer will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

California Dept. of Real Estate, Broker #01050210
Please consult a licensed legal, tax and/or investment professional to obtain laws and qualifications as they pertain to your specific situation. The information provided is not intended or written to be used as legal, tax and/or investment advice. Loan approval is not guaranteed and is subject to verification of specific information that is requested at time of application. Specific programs and rates may not be available for all borrowers.