There are other limits on the use of the credit. For example, the credit cannot be used on a home purchase if the purchase price of the home is more than $800,000.00. There is no phase-out; the credit stops abruptly at $800,000.00. Moreover, an important limitation for some buyers is that the credit is not applicable to a purchase of a home from most family members.
The “first time buyer tax credit” is, as the name states, a credit. For every dollar of credit an individual is entitled to, his or her taxes are reduced by $1.00. The credit is also refundable – thus, if you are due a credit of $8,000.00 and you would otherwise only owe the I.R.S. $6,000.00, you would get a check from the I.R.S. for $2,000.00. In connection with this, it should be noted that certain buyers (those utilizing FHA mortgages) do not even have to wait to file their tax returns to receive the benefits of the credit. FHA approved agencies and lenders are empowered to lend money up to the amount of the credit or, in some cases, empowered to “buy” the tax credit from the borrower in order to provide the money to be used for closing costs or, in the former case, the 3.5% down payment required by FHA.
The truly new feature of the homebuyers credit, however is the “long-time resident tax credit.” This credit is designed to assist “move-up” buyers. A “long-time resident” is someone who has lived in the same home for at least five consecutive years during the eight year period prior to the purchase of the move-up home. For such a qualifying buyer, a credit is available for the lesser of 10% of the value of the purchase or $6,500.00. The same limits on income as are applicable to the first-time buyer are applicable here. Likewise, no credit is available for purchase of $800,000.00 or more.
Finally, of course, there are time limits that must be met. To qualify for either of the credits the purchase contract must be entered into by April 30, 2010 and the purchase must be closed on or before June 30, 2010. In the case of the first-time buyer credit, the Agreement must be entered into after January 1, 2009 to qualify. In the case of the long-time resident buyers credit, the home must have been purchased on or after November 7, 2009.
— Rod Fluck