First-Time Homebuyer
A “first-time homebuyer” is any individual (and spouse if married) who had no present ownership interest in a qualifying principal residence during the 3-year period ending on the date of purchase of the principal residence for which a first-time homebuyer credit is being claimed.

Exceptions to definition of First-Time Homebuyer

Initial Credit
The initial credit for qualified buyers is equal to 10% of the purchase price of the principal residence, but cannot exceed $7,500 ($3,750 for married individuals filing a separate return).

Modified Adjusted Gross Income Limit
The credit phases out for individuals with modified adjusted gross income (MAGI) between $75,000 and $95,000 ($150,000–$170,000 for joint filers) for the year of purchase. The credit is completely phased out for an individual with a MAGI equal to or more than $95,000 ($170,000 for joint filers).

To determine the allowable credit, subtract the limit threshold of $75,000 ($150,000 in the case of a joint return) from your MAGI. Divide the difference by $20,000 to get your reduction ratio. Multiply your initial credit by your reduction ratio to arrive at the credit reduction amount. Subtract the credit reduction amount from the initial credit to arrive at the allowable credit amount.

Example: Facts — Filing Status = Single, MAGI = $80,000, Purchase Price = $80,000, Initial Credit = $7,500 (limited to the lower of $8,000 (10% of Purchase Price) or $7,500)

$80,000 MAGI…………..–….$75,000 Limit Threshold…..=….$5,000 Excess Over Threshold

$..5,000 Excess………….÷….$20,000 Max. Excess……….=…..25% Reduction Ratio

$..7,500 Initial Credit….x……25% Reduction Ratio……..=…..$1,875 Credit Reduction

$..7,500 Initial Credit….–….$1,875 Credit Reduction…..=…..$5,625 Allowable Credit

Recapture of credit
If a first-time homebuyer credit is allowed to a taxpayer, the taxpayer’s income tax is increased by 6 2/3% of the amount of such credit for each taxable year in the 15-year “recapture period.” The recapture period begins with the second taxable year following the year of purchase for which the credit is taken.

For example, if a taxpayer is allowed a $7,500 first-time homebuyer credit in 2008, the taxpayer must recapture the credit amount by adding $500 (which is 6 2/3% of $7,500) to his income tax liability each year for 15 years, beginning in 2010.

Acceleration of recapture
If a taxpayer disposes of the principal residence for which a first-time homebuyers credit was allowed (or ceases using it as a principal residence) before the end of the 15-year recapture period, the remaining credit repayment amount is added to the income tax liability of the taxpayer for the year of sale or cessation of use.

Exceptions to recapture
In the case of a sale of the principal residence to an unrelated person, the increase in tax due to accelerated recapture is limited to the amount of gain (if any) on such sale. For purposes of calculating gain, the adjusted basis of such residence shall be reduced by the amount of the first-time homebuyer credit allowed, to the extent not previously recaptured. In the case of an involuntary conversion, recapture is not accelerated if a new principal residence is acquired within a 2-year period. No amount is recaptured after the death of the taxpayer.

Special election to treat purchase as made in prior year.
In the case of a purchase of a principal residence after December 331, 2008, and before July 1, 2009, a taxpayer may elect to treat such purchase as made on December 31, 2008.

For more detailed information on qualifying for and claiming the first-time homebuyer credit, refer to additional topics on this subject on the IRS Website at www.irs.gov.