$8,000 tax credit set to expire

Editor's note: This is Part 2 of a two-part series. Read Part 1.

Time's a ticking on the $8,000 first-time homebuyer tax credit. Don't wait -- this opportunity will pass you by if you don't close on your new property before Dec. 1, 2009.

Part 1 of this series discussed the advantages of buying now rather than waiting. One of the best reasons for buying now is the $8,000 tax credit. Here are some of the requirements to take advantage of this great program:

1. Who qualifies as a first-time homebuyer?
For the purposes of the $8,000 credit, it is a buyer who has not owned a principal residence for a three-year period prior to purchase. If a married couple is purchasing, they qualify only if both spouses have not owned a property in the last three years. For parents who may be assisting a child in purchasing a first home, the law does permit a partial allocation of the tax credit to their first-time-buyer child. See your accountant for the exact details. One other important point to note: The property cannot be purchased from a spouse, parent, grandparent, sibling, child or grandchild.

2. How does a tax credit work?
A tax credit is different from a deduction. For example, assume that you pay a total of $20,000 in interest on your mortgage and you are in the 15 percent tax bracket. Your total deduction against your income will be $3,000. In contrast, a tax credit of $8,000 means that your taxes are reduced by the full $8,000 amount. In fact, if you owe less than $8,000 in taxes, you can receive a refund. (This would normally be $8,000 minus the amount of taxes you owe. Check with your tax professional to verify the exact amount.)

3. How does the 2008 tax credit work as compared to the one from 2007?
In the 2008 program that expires on Dec. 1, 2009, the buyer will receive 10 percent of the purchase price of the home, up to a maximum of $8,000. The tax credit program that was passed in 2007 required the buyer to pay back the tax credit at a future date. The current tax credit does not have to be paid back, provided that you stay in the home for at least three years. (If you received a tax credit under the 2007 bill, see your tax professional about filing an amended return for the year in question.)

4. What are the income restrictions?
There are income restrictions, based upon what is known as "MAGI," or modified adjusted gross income. For most buyers, if you are single and earn under $75,000 per year, or you are a married couple and you earn under $150,000, you will qualify. If you make more, you may qualify for a partial credit based upon your modified gross income. Check with a tax professional to determine your eligibility. ...CONTINUED

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