March 23, 2009 By ALAN ZIBEL, AP Real Estate Writer WASHINGTON – Sales of previously occupied homes jumped unexpectedly in February by the largest amount in nearly six years as first-time buyers took advantage of deep discounts on foreclosures and other distressed properties. Economists said sales, while still at levels not seen since 1997, may finally be coming back to life after declining sharply following the stock market plunge last autumn.

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By TIM PARADIS, AP Business Writer NEW YORK – Wall Street is getting the good news it wants on the economy’s biggest problems: banks and housing. Investors reignited a two-week rally Monday after hearing the government’s plan to help banks remove as much as $1 trillion in bad assets from their books and home sales showed a surprise increase. Major stock indexes jumped as much as 4 percent, including the Dow Jones industrial average, which rose nearly 300 points. The Treasury Department said its plan would rely on the government’s $700 billion financial rescue fund, the Federal Reserve and the Federal Deposit Insurance Corp., as well as private investors.

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The first-time homebuyer credit is effective for purchases on or after January 1, 2009 and before December 1, 2009.

The amount of the homebuyer federal income tax credit is the lesser of 10% of the cost of the home bought or $8,000.  Any single-family residence my be an eligible property under the homebuyer income tax credit, provided it will be used as the homebuyer’s principal residence.

This homebuyer income tax credit reduces income tax liability.  The $8,000 tax credit is a clean refundable credit, unlike the one that was passed last summer, which required a repayment.  If you qualify as a first-time buyer (haven’t been a homeowner in the past 3 years), then you can claim the $8,000 to reduce your tax burden.  If the $8,000 is greater than the tax you owe, then you will get a refund check for the difference.

In order to be eligible for the homebuyer income tax credit in full, the homebuyer can have an annual adjusted gross income of no more than $75,000 ($150,000 on a joint return).  A homebuyer with an annual adjusted gross income above that level and up to $95,000 ($170,000 on a joint return) is eligible for a reduced tax credit.

The homebuyer income tax credit is designed for first-time homebuyers, which means the homebuyer (and/or the homebuyer’s spouse) can not have owned a principal residence in the 3 years prior to purchase of the eligible property.

There is no repayment of the homebuyer income tax creidt by the homebuyer.  However, if the elibible property is resold within three years of purchase, the entire amount of homebuyer income tax credit is recaptured on the sale.

The First-Time Homebuyer Federal Income Tax Credit is effective for purchases on or after January 1, 2009 and before December 1, 2009.  This information reflects a modification from the First-Time Homebuyer Federal Income Tax Credit, which remains in effect for homes purchased by eligible homebuyers between April 9, 2008 and December 31, 2008.

Seek advice from a professional tax advisor for specific tax calculations and timing for claiming the tax credit.

Source:  Based on information provided by the National Association of Realtors.