I read that the tax credit is “refundable.” What does that mean?

The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even the entire amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $6,500 home buyer tax credit. As a result, the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000 owed).

What happens if I am eligible for the tax credit, but the amount I owe before the credit is less than $8,000?

If your actual tax liability was $6,000, the purchaser would receive a tax credit refund of $2,000. The refundable amount is the difference between the $8,000 credit amount and the amount of tax liability ($6,000 owed vs. $8,000 credit = $2,000 refund).

I don’t owe taxes and/or my income is exempt from tax and I do not have a filing requirement. Do I qualify for the credit?

The credit is fully refundable and, if you qualify as a first-time homebuyer, having tax-exempt income will not preclude eligibility. Although there are maximum income limits for qualifying first-time homebuyers, there are no minimum income criteria. Thus, someone with no taxable income who qualifies as a first-time homebuyer may file for the sole purpose of claiming the credit for a refund.

If you are interested in purchasing a home, a tax advisor can help you determine how the homebuyer credit will affect your taxes.  To determine if you qualify for a loan, contact one of our Home Loan Specialist at 1-888-562-6200 or Apply Online on our website www.churchillmortgage.com.  We would be happy to help!