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.

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

5. What property types qualify?
The property must be the buyer’s primary residence. This can include single-family residences, townhouses, condominiums, mobile homes and even houseboats. It also includes a house you build on your own lot and occupy as your primary residence.

6. What do I have to do the claim the credit?
The most important point to keep in mind is that you must have closed on the property before Dec. 1, 2009, and you must immediately occupy it as your primary residence. Given that it is often taking 60 to 90 days to close a transaction, it’s imperative that you get a house under contract quickly if you want to make that deadline.

Assuming that you meet the deadline, you will then file IRS Form 5405 on your 2009 income tax return. If you are taking the credit in 2008, you will have to file an amended return. It’s always smart to speak to a tax professional regarding the best year in which to take a major deduction such as this one.

7. Can I get access to this money before 2010?
There are two ways to do this. You can lower your withholding taxes by changing your W-4 with your employer. If you are self-employed, check with your tax professional about how much you can lower your estimated tax payments. One very strong caveat here: Don’t change your withholding until your transaction has closed.

If you don’t close on time, then you would be in the unpleasant position of having to pay the money back. Worse yet, you may have to pay interest and penalties as well.

The U.S. Housing and Urban Development Departmetn has announced that buyers purchasing with FHA-insured mortgages may be able to use the tax credit for certain downpayment and closing costs. Some state agencies are also offering tax credit assistance programs as well.

8. Can non-U.S. citizens receive this credit?
People from other countries who are in the U.S. legally and meet the other requirements may qualify for this credit.

If you’re interested in knowing more about this important topic, don’t wait. Check it out today. And if it’s the right time for you: Buy that first home, and start living the American Dream. (To learn more details about the program, visit http://www.federalhousingtaxcredit.com/2009/index.html.)

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com and find her on Twitter: @bross.

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