Tax credit deadline looms for homebuyers

A deadline is fast approaching for first-time homebuyers to claim a federal income tax credit.

To qualify for a federal income tax credit of up to $8,000, homebuyers need to complete their purchases by Dec. 1. That means that the last day to close on a home is Nov. 30.

White House officials said this week that President Barack Obama is considering extending the program that was part of the federal stimulus law, but that decision has not been made.

More than 1.4 million taxpayers nationwide have taken advantage of the provision, including about 16,559 Iowa families, according to the Internal Revenue Service.

The tax credit is equal to 10 percent of a home's purchase price, up to $8,000. So, if someone buys a home for $75,000. he or she would receive a $7,500 credit.

The limit is $4,000 for a married person filing a separate tax return. In most cases, the full credit is available for homes costing at least $80,000.

The tax credit is reduced or eliminated for higher-income taxpayers. The credit is phased out according to a taxpayer's modified adjusted gross income. For a married couple filing a joint return, the phaseout range is $150,000 to $170,000. For other taxpayers, it is $75,000 to $95,000.

The tax credit is not instantaneous. A homebuyer must either amend his or her 2008 tax return or seek the benefit on a 2009 tax filing. Because it is a tax credit, a buyer who owes no taxes would get a check for the amount of the credit.

To keep the credit, a homeowner must use the home as his or her primary residence for three years after the purchase. If a homeowner sells the home within three years, the tax credit must be repaid.

Taxpayers cannot take the credit if:

l They buy a home from a close relative - a spouse, parent, grandparent, child or grandchild.

l They owned another main home at any time during the three years before the date of purchase. For a married couple filing a joint return, this requirement applies to each spouse.

The IRS is cautioning taxpayers to avoid schemes that help ineligible people file false claims for the credit. The IRS says it is investigating a number of cases of potential fraud and using computer screening to identify questionable claims for the credit.