A few examples are provided at the end of this document.  There are several steps in this calculation, but most income tax software programs are equipped to make that determination.  WITHHOLDING EXAMPLES:  Note:  The impact of estimated tax payments would be the same.  

Situation 1:  Sally plans her withholding so that her withholding is as close as possible to what she anticipates as her income tax liability for the year. When she fills out her 1040, her liability is $6000. She has had $6000 withheld from her paycheck. She also qualifies for the $8000 homebuyer credit.

Result: Sally’s withholding satisfies her tax liability and reduces it to zero. She will receive a refund of the full $8000.

Situation 2: Nick and Nora file a joint return. Nick is self-employed and makes estimated payments; Nora has taxes withheld from her salary. When they compute their taxes, their combined withholding and estimated tax payments are $11,000. Their income tax liability is $9800. They also qualified as first-time homebuyers and are eligible for the $8000 refundable tax credit.

Result: Ordinarily, their combined estimated tax payments and withholding would make them eligible for a refund of $1200 ($11,000 - $9800 = $1200). Because they are eligible for the refundable tax credit as well, they will receive a refund of $9200 ($1200 income tax refund + $8000 refundable tax credit = $9200)

Situation 3: Cesar and LuzMaria both have income taxes withheld from their salaries and file a joint return. When they file their income tax return, their combined withholding is $5000. However, their total tax liability is $7200, generating an additional income tax liability of $2200 ($7200 - $5000). They also qualify for the $8000 first-time homebuyer tax credit.

Result: Cesar and LuzMaria have been under-withheld by $2200. Ordinarily, they would be required to pay the additional $2200 they owe (plus any applicable interest and penalties). Because they are eligible for the refundable homebuyer tax credit, the credit will cover the $2200 additional liability. In addition, they will receive an income tax refund of $5800 ($8000 - $2200 = $5800). If they owed penalties and/or interest, that amount would reduce the refund. * 

This does not constitute legal advice and you are advised and encouraged to consult a Tax professional.

Visit my website at www.atlantarebaterealestate.com for all the details of the $8,000 First Time Home Buyer Tax Credit in the Metro Atlanta Real Estate market.  In addition to the First Time Home Buyer Tax Credit, there is a program with the Department of Housing and Urban Development that allows the purchase of a home with only a $100 Down Payment in the Metro Atlanta Real Estate market.  Visit my website to search for homes from the Department of Housing and Urban Development (HUD) at www.atlantarebaterealestate.com or email me at rebaterealestate@yahoo.com with any questions.  I also work on a Full Service volume model which allows me to offer a REBATE of my commission up to 50% or more depending on the price of the home you purchase with me as your REALTOR.  As always I am available by phone at (770)  530 - 9114 to answer questions and/or get you started buying your home in the 28 county Metro Atlanta Real Estate market.   

*Source:  National Association of REALTORS® Government Affairs Update First-Time HomeBuyer Tax Credit