Taxes

First-time Homebuyer Tax Credit

In February, the economic stimulus package known as the “American Recovery and Reinvestment Act of 2009” was signed into law by President Obama. The Act includes provisions intended to revitalize the housing market, while the U.S. Treasury Department’s plan to help mitigate foreclosures and encourage new lending also targets a housing recovery. Here is a informative video from the Florida Association of Realtors.

For aspiring home owners who find their goal stubbornly elusive, newly enacted legislation providing a tax credit of as much as $8,000 for first-time home buyers might just be the opportunity of a lifetime. If you’re planning to buy a home, you may be eager to take advantage of the federal government’s latest effort to jump-start the nation’s struggling housing markets: A tax credit of up to $8,000 for first time home buyers. Under the terms of the new stimulus package, the first time home buyer tax credit is a true credit and would not have to be repaid.

The first time home buyer tax credit was originally part of the Housing Recovery Act passed last summer by Congress. Learn how you can take advantage of this $8,000 tax credit to buy the home of your dreams.

If you bought a home recently, or are considering buying one, the following questions and answers may help you determine whether you qualify for the credit. For the purpose of this tax credit, a first-time home buyer is defined as someone who has not owned a primary residence in the three-year period ending on the date of purchasing the home.

To qualify, you must satisfy these conditions:

* The home must be purchased between Jan. 1, 2009, and Dec. 31, 2009.

* The home must be purchased as a primary residence. All homes, whether single-family, town homes, or condominium apartments will qualify.

* The buyer has not owned a home in the last 3 years. You can own a vacation home or a rental property and still qualify for this tax credit.

* The tax credit does not have to be paid back, providing the homebuyer keeps the property for at least 36 months and resides in the home.

There is an income limit to qualify. A married couples’ modified adjusted gross income (MAGI) should be under $150,000 and single filers’ MAGI should be less than $75,000. Partial tax credits may be available for married couples with MAGI incomes over $150,000 but under $170,000, and single filers with incomes over $75,000 but under $95,000. If married couples file separately, they can both claim 5 percent of the home purchase ($4,000 each for a home over $80,000) on their tax returns.

Under the terms of the new stimulus package, the tax credit is not a deduction, but rather a true credit in the sense that your federal income tax liability will be reduced dollar-for-dollar up to the amount of the credit you’re entitled to take. Unlike the tax credit enacted in 2008, the new credit does not have to be repaid. The problem is that the tax credit cannot be used for the down payment as it stands.

Like all tax credits, it will directly reduce the total amount of taxes you owe. Instead the home buyer would claim the credit when filing their income taxes and use IRS form 1040 and any additional forms requested by the Internal Revenue Service.

Any first-time homebuyers who believe they would be eligible for all or part of the credit may wish to modify their income tax withholding (through their employers) or to adjust their quarterly estimated tax payments, and save the money toward a down payment. There is one caveat, however: Should they not buy a home in the qualifying period, they would still owe the IRS the money, and reducing their withholding amount could result in a high bill at tax time. The tax credit can be claimed on 2008 income tax forms even though the purchase took place in 2009.

The credit is for 10% the cost of the home, up to a maximum credit of $8,000, which means all homes worth more than $80,000 could qualify for the maximum amount. Thus, if after figuring out all the income tax items, if a person had a tax liability of $9000, a $8000 credit applied to that would mean that only $1000 tax would be due. Another example, is If a person had a tax refund of $1,000, applying the $8,000 credit would mean that the person would receive a refund of $9,000.

This is a great opportunity for first time homebuyers to take advantage of the $8,000 first time homebuyer tax credit. As it helps more homebuyers afford housing, the first-time-homebuyer tax credit likely will have a multiplier effect on the housing market. When you combine the tax credit with today’s low interest rates, wide selection of for-sale inventory, and affordable home prices, many of the pieces are in place for the first time homebuyer.