There is A LOT of limitations with the First Time Homebuyer Credit. You may get a reduced or even no credit depending on several factors. It is not as simple as "buy a house and get a $8,000 credit on your tax return."
Here are the new rules that apply to a purchase of a principal residence after November 6, 2009.
Refundable credit amount: 10% of the purchase price but max at $8,000 (translation: Consider it $8,000 for Irvine). But if you file a married filing separately return, the credit is just $4,000.
Adjusted Gross Income Limitation for Single/Head of household/Married Filing Separately filers: The credit phases out with modified adjusted gross income between $125,000 and $145,000 (translation: If your AGI is more than $125,000, the IRS will start reducing the $8,000 credit until you get "zero" credit when your AGI is over $145,000). In a loose term, AGI is generally the number on Line 37 of regular Form 1040 (not 1040EZ) for most people.
Adjusted Gross Income Limitation for Married Filing Jointly filers: The credit phases out with modified adjusted gross income between $225,000 and $245,000 (translation: If your AGI is between $225K and $245K, you get a partial credit - less and less credit as your income is closer to $245K. If your AGI is over $245K, you will not get the $8,000 credit!)
Type of home: It must be for the taxpayer's principal residence provided he/she has not owned an interest in a principal residence in the United States for the three years prior to the purchase. (Translation: you are probably a renter or live with your parents for the past three years... Example, if you sold your house less than 3 years ago, you don't qualify for the $8,000 credit. However, you "may" qualify for a new $6,500 credit for the current home owner which I will explain later.)
Home Price Limitation: The $8,000 credit is not available if the purchase price is more than $800,000 (Translation: No $8,000 tax credit if you plan to purchase Sonoma Plan 2, Sonoma Plan 3, Carmel and Villa Rosa. Sonoma Plan 1's base price is currently at $771,000. So, if the buyer of this plan 1 goes crazy with the upgrades and tip over the $800K mark, no credit for him too)
Timing Limitation: The credit is available for homes purchased before May 1, 2010. The credit also applies to purchases that are under a binding written contract on April 30, 2010, if they close before July 1, 2010. (Translation: Looks like only Phase 1 and maybe Phase 2 buyers will beat the clock. For all the other pre-approved buyers, most likely no credit for you even if you get a house after June 30, 2010. The experts don't think there will be another extension of this $8,000 credit. We won't know for sure until we are close to June. But as of now, June 30, 2010 is the final deadline)
No Straw Buyer Clause: The credit is NOT available to an individual who is claimed as a dependent by another taxpayer. The credit is also denied to individuals under age 18 as of the purchase date unless the individual is married and the individual's spouse meets the age requirement. (Translation: FCB buyers beware! You cannot buy a house under your college son's name if he is still claim as your dependent on your tax return. Likewise, 15 year-old Johnny is too young to have his own home)
Duration of Ownership Limitation: You must REPAY the credit if the principal residence is disposed of or ceases to be used as the taxpayer's principal residence within 36 months of purchase. (Translation: You must live in this house as your principal residence for 3 years. If you don't, you have to give back the $8,000 to the IRS in the year of sale)
Related Party Transaction: No credit if home is purchased from a related party.
If you still qualify for this credit after considering all of the above and you purchase your Irvine dream home in 2010, you can get this tax credit by claiming it on your 2009 tax return. You don't have to wait until next year's 2010 tax return filing.
Lastly, you can't e-file 2009 return if you plan to claim this credit. Why? There have been many abuses in the past two years. So, the IRS is reviewing all returns claiming this credit and you will need to attach supporting documents with your return to show you truly deserve this credit. (Note I didn't say it will be "audited").
There are more rules pertaining to other situations (two single buyers, newly wed, divorced but then wed again, Arms Forces). So, check the IRS website for more info.
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