First-time homebuyers can claim a credit worth $8,000 or 10 percent of the home’s cost, whichever is less, on their 2008 or 2009 income tax return. This windfall is made available from the economic stimulus package signed into law by President Obama this February.

The credit is claimed on form 5405 which is filed with an individual’s personal income tax return. The credit received is not taxed as taxable income. This credit is refundable, meaning a taxpayer will receive a refund of the entire $8,000, even if their entire income tax for the year is less than $8,000.

Three different hypothetical taxpayers illustrate how the $8,000 credit works:

Taxpayer #1

Dale and Louise had a tax liability of $5,000. They both work for a salary and had $5,000 in income taxes withheld for the year.

Because they have already paid the government all that they owe, the $8,000 credit is refunded to them.

Taxpayer #2

James and Ann had a tax liability of $4,000. They work and had $5,000 in income taxes withheld for the year. In a normal year, they would receive a refund of $1,000. In this year, they get a refund of $9,000 — the $8,000 credit plus the $1,000 that they had overpaid.

Taxpayer #3

Corinne had a tax liabilty of $5,000. She had $4,000 in income taxes withheld. In a normal year she would have to pay the IRS $1,000.

In this year the homebuyer credit would pay the tax bill, and the remaining $7,000 would be refunded.

Eligibility

To qualify for the credit in 2009, the purchase must be made in 2009 before Dec. 1. A buyer must not have owned a home for the past three years, and his income must generally be less than $150,000 if married and $75,000 if single.

Also, the house cannot be acquired by inheritance or purchased from a related person.

There is also a first-time homebuyer credit available for homes purchased in 2008. This credit is limited to $7,500 and must be repaid over a 15-year period.

The credit for a home purchased in 2009 does not ever have to be repaid if the requirements are met.

Myles Hopkins is an accountant for Silas Simmon LLC in Natchez. He can be reached by calling 601-442-7411.