With the deadline quickly approaching, the Internal Revenue Service is reminding potential homebuyers that they must complete their first-time home purchases before Dec. 1 to qualify for the special first-time homebuyer credit.

The American Recovery and Reinvestment Act extended the tax credit, which has provided a tax benefit to more than 1.4 million taxpayers. California leads all states with more than 160,000 individual income tax returns filed claiming the credit. That includes both original and amended returns filed for 2008. Taxpayers have the option of claiming the credit this year on their 2008 returns or waiting until next year and claiming it on 2009 returns.

The credit of up to $8,000 is generally available to homebuyers with qualifying income levels who have never owned a home or haven’t owned one in the past three years. The IRS encourages all eligible homebuyers to take advantage of the first-time homebuyer credit, but cautions taxpayers to avoid schemes that help ineligible people file false credit claims. The agency identifies questionable claims and is investigating potential fraud cases.

Those considering buying a home must act soon to qualify for the credit. Under the Recovery Act, an eligible home purchase must be completed before Dec. 1, meaning the last day to close on a home purchase is Nov. 30. The credit cannot be claimed until after the purchase is completed. For those considering a home purchase this fall, here are other details about the first-time homebuyer credit:

» The credit is 10 percent of the purchase price of the home, with a maximum available credit of $8,000 for either a single taxpayer or a married couple filing jointly. The limit is $4,000 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $80,000 or more.

» The credit reduces the taxpayer’s tax bill or increases his or her refund, dollar for dollar. Unlike most tax credits, the first-time homebuyer credit is fully refundable. That means the credit will be paid to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

» Only the purchase of a main home in the United States qualifies. Vacation homes and rental properties are not eligible.

» A home now under construction qualifies for the credit only if the taxpayer occupies it before Dec. 1.

» The credit is reduced or eliminated for higher-income taxpayers. The credit is phased out based on the taxpayer’s modified adjusted gross income. MAGI is adjusted gross income plus various amounts excluded from income, such as certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the range is $75,000 to $95,000. This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.

» The credit must be repaid if, within three years of purchase, the home ceases to be the taxpayer’s main home. This includes situations where the taxpayer sells the home or converts it to business or rental use.

Click here for more information on claiming the credit, including Form 5405, First-Time Homebuyer Credit. The IRS also has a YouTube video and other resources that explain the credit in detail.

— Victor Omelczenko is an Internal Revenue Service media relations specialist.