The Deets on the First-time Homebuyer Tax Credit
With the housing bubble bursting and the 2008 recession rearing its ugly head, many would-be homeowners balked at making such a huge financial commitment as buying a residence. However, the First-Time Homebuyer Credit assuaged some of the fear, by assuming a lower financial risk. "The newer homes in the area we wanted to live were out of our price range," explains Christy Cook, who cashed in on the credit in 2009. "We opted to buy an older home, so the tax credit helped us to fix some things that needed attention, which we wouldn't have been able to do otherwise."
The credit was available to first-time homebuyers during the time frame of April 8, 2008 to May 1, 2010, for the purchase of a full-time dwelling only. In other words, no fair buying it and then turning it into a profitable rental or vacation home! Interestingly, if a person purchased the residence and lived there full time, she could then rent out other portions of the home and still be able to receive the credit [source: IRS].
The term "first-time buyer" was relatively flexible, as the credit was up for grabs to those who had never owned a home, or who had not owned a residence in at least three years [source: Manni]. The amount available ranged from 10 percent of the home's purchase price, up to a max of $7,500 or $8,000, depending on year of purchase. So, homebuyers in at least the $75,000/$80,000 price range were able to take full advantage of the perk.
In a twist that pleased many, the U.S. government expanded the credit to long-time homeowners just itching to upgrade to a replacement home. Purchase had to take place after Nov. 6, 2009, for a maximum $6,500 credit [source: IRS]. Long-time homeowners were defined as having owned and used the property as a principal residence for a minimum of five years. That half-decade period had to take place consecutively within the eight years before applying for the credit [source: Bell]. For families or other owners interested in shedding a starter home for something roomier, this credit was just the kick in the pants they needed to start house-hunting, if with a little bit of extra caution.