New $8,000 Tax Credit for First-time Home Buyers

Great news for first-time home buyers in 2009!  The stimulus plan that President Obama signed into law contains a new $8,000 tax credit for qualified first-time home buyers.  Unlike the $7,500 tax credit from 2008, this credit DOES NOT have to be repaid to the government, as long as you stay in the home for at least 36 months after the purchase date.

Remember, a tax credit is much more valuable than a tax deduction. A tax credit reduces dollar for dollar the amount of tax you owe. This means the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset.  A deduction merely reduces the amount of your income that is taxable.

Who Can Apply?

First-time buyers or anyone who hasn't owned a home in the 3 years prior to a purchase of a primary residence may qualify for a tax credit of up to 10% of the purchase price or $8,000, whichever is less. To qualify for the full credit, the buyer's modified adjusted gross income must be less than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. Partial credit is proportionally reduced for incomes under $95,000 (single) or $170,000 (married). For married taxpayers, the homeownership history of both the home buyer and his/her spouse are taken into account. This means if you or your spouse has owned a principal residence in the last 3 years, neither you nor your spouse qualifies for the credit.

What makes it a Primary Residence?

According to the IRS, a primary residence is the one you live in most of the time. It can be a house, houseboat, housetrailer, cooperative apartment, condominium, or other type of residence. If you constructed your main home, you are treated as having purchased it on the date you first occupied it.

When is the Tax Credit Available?

The $8,000 tax credit is available for qualifying home purchases made from Jan. 1, 2009, until Dec. 1, 2009. This is not a typo. To receive the credit you must purchase a qualified home before December 1st, 2009 – not the end of the year.

How can you use the credit?

Unfortunately, you CAN NOT use the credit as a down payment. To receive the credit, you must purchase a qualified home first and then claim it on either your 2008 or 2009 taxes. If you make a qualified purchase after April 15, or after having already filed your 2008 taxes, you and your tax professional can submit an amendment to your return. To claim the credit, use form 5405.  The tax credit will reduce any amount of taxes you owe.

For Example:

• If you are getting (or have already gotten your tax refund) you will receive this additonal $8,000.00
• If you do not owe taxes, you will receive the $8000.00 credit
• If you owe taxes in excess of what you have paid, the credit will be used to offset the amount you owe and you will receive at check for the balance.

Why apply for the tax credit?

The current combination of lower home prices and lower interest rates makes for an amazing opportunity to buy real estate. Add to that this $8,000 gift from the government.  You can use the money to pay off debt, remodel you home or do needed repairs or just bank it.

If you or someone you know is ready to stop paying the landlord's mortgage and start building equity in your own home, give us a call. We'll run the numbers and see what makes sense for your individual financial needs.