Income Restrictions for the $8,000 Tax Credit

Is there an income restriction?

Yes. The income restriction is based on your tax filing status. If you are filing Form 1040 as Single or Head of Household, you are eligible for the full credit if your income is no more than $75,000. Married couples filing a Joint return may have income of no more than $150,000.

How is my “income” determined?

If you’re like most individuals, your income is defined and calculated in the same manner as your Adjusted Gross Income (AGI) on the 1040 income tax return. AGI includes items like wages, salaries, interest and dividends, pension and retirement earnings, rental income and a host of other elements. AGI is the final number on the bottom line of the front page of an IRS Form 1040.

If I exceed the income limits of $75,000 (single) or $150,000 (married filing jointly), do I lose all the benefit of the credit? 

Not always. The credit phases-out between $75,000 and $95,000 for singles; $150,000 and $170,000 for married filing jointly. This means for singles making over $75,000 and couples making over $150,000, the credit is proportionately reduced as incomes approach $95,000 and $170,000 respectively.

The law provides a formula to gradually reduce the credit. If you make $90,000, the excess amount is used to create a fraction 15,000 ($90,000-$75,000) divided by 20,000 ($95,000-$75,000) times the $8,000 credit amount. In this case, 75% or $6,000 of the credit would be disallowed, getting you a $2,000 tax credit.

Are there restrictions related to the financing of the mortgage on the property?

For the $7,500 tax credit in 2008, purchasers were ineligible for the credit if the financing was obtained by means of mortgage revenue bonds.

Mortgage revenue bonds are tax-exempt bonds issued by a state housing agency that must be used for below market loans to qualified buyers.

For the $8,000 tax credit in 2009, Congress eliminated the financial restriction that applied to the $7,500 tax credit.

Now, in 2009, mortgage-revenue bond financing will not disqualify an otherwise-eligible purchaser.

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