What types of homes will qualify for the tax credit? Any home that will be used as a principal residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800k. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats. It is important to note that you cannot purchase a home from family members, ancestors, lineal descendants or your spouse or your spouse’s family.

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 all of the refundable tax credit.

Instead of buying a new home from a homebuilder, I hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit? Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after Jan. 1, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April, 30, 2010).

In contrast, for newly constructed homes bought from a homebuilder, eligibility for the tax credit is determined by the settlement date.

Can I claim the tax credit if I finance the purchase of my home under a mortgage revenue bond (MRB) program? Yes. The tax credit can be combined with an MRB homebuyer program. Note that first-time homebuyers who purchased a home in 2008 may not claim the tax credit if they are participating in an MRB program.

Is a tax credit the same as a tax deduction? No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.

A tax deduction is subtracted from the amount of income that is taxed.

I bought a home in 2008. Do I qualify for this credit? No, but if you purchased your first home between April 9, 2008, and January 1, 2009, you may qualify for a different tax credit. Consult a tax adviser for more information.

Is there a way for a homebuyer to access the money allocable to the credit sooner than waiting to file their 2009 or 2010 tax return? Yes. Prospective homebuyers who believe they qualify for the tax credit are permitted to reduce their income tax withholding. Reducing tax withholding (up to the amount of the credit) will enable the buyer to accumulate cash by raising his/her take home pay. This money can then be applied to the down payment.

Buyers should adjust their withholding amount on their W-4 via their employer or through their quarterly estimated tax payment. IRS Publication 919 contains rules and guidelines for income tax withholding.

HUD is now allowing “monetization” of the tax credit. What does that mean? It means that HUD allows buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than waiting until they file their 2009 or 2010 income taxes to receive a refund. These funds may be used for certain down payment and closing cost expenses.

If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return? Yes. The law allows taxpayers to choose to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on Dec. 31, 2008 (or if in 2010, Dec. 31, 2009).

For a home purchase in 2009 or 2010, can I choose whether to treat the purchase as occurring in the prior or present year? Yes. If the applicable income phase out would reduce your home buyer tax credit amount in the present year and a larger credit would be available using the prior year MAGI amounts, then you can choose the year that yields the largest credit amount.

Steve Kellerman is a certified mortgage planner with Davis and Amaral Mortgage Consultants, Inc. He can be reached at (916) 812-5547 or e-mail steve@stevekellerman.com.