The stimulus plan that President Obama has signed into law as part of the American Recovery and Reinvestment Act of 2009 contains an important tax credit for first-time home buyers: a tax credit of 10% of the purchase price, up to $8,000 for first-time home buyers only.
First-time buyers, for the purpose of this credit, are those who have not owned a home in three years. This new tax credit does not replace the 10% of purchase price, up to $7,500 tax credit passed as part of last year’s Housing and Economic Recovery Act of 2008.
So, there are two breaks for first-time homeowners in the tax code now. Which credit you can take depends on when you purchased your home.
If you’re a first-time home buyer and you purchased your home on or after April 8, 2008, and by Dec. 31, 2008, you may qualify for 10% of the purchase price, up to $7500 tax credit but you have to pay that back because it’s not really a credit, it’s more like a 15-year, interest-free loan from the IRS.
Visit the IRS website or consult your tax advisor for the details if you qualify for this credit (loan). The credit is 10 percent of the purchase of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing a joint return; $3,750 for married persons filing separate returns.
The full credit is available for homes costing $75,000 or more. Only purchases of a main home located in the United States qualify, and the home must have been purchased after April 8, 2008, and before December 31, 2008. For a home you construct, the purchase date is the date you first occupy the home.
The up to $8,000 tax credit is available for qualifying home purchases made from Jan. 1, 2009, until Dec. 1, 2009 (yes, Dec. 1 not Dec. 31). At least the credit is a true credit and does not need to be repaid, that is, if you don’t plan on moving within three years. The home must remain the buyer’s “main home” for at least 36 months after the purchase date, which means no selling or renting the home. This won’t work for an investment property. If the buyer sells or moves before 3 years have passed, they will need to pay back the credit.
There is also an income limitation and the credit starts phasing out if you have over $75,000 in gross adjusted income for single filers and up to $150,000 in adjusted gross income for joint (married) filers.
A tax credit is much more valuable than a deduction. A credit reduces dollar for dollar the amount of tax you owe. A deduction merely reduces the amount of your income that is taxable.
Please click on the following links to see a side by side comparison of the two tax-credits, repayment requirements, recapture requirements, income limits to qualify, property eligibility, amount of credit, etc.
Tax Credit Chart (Source: National Association of Realtors)
http://www.irs.gov/newsroom/article/0,,id=204671,00.html (IRS.gov Website)
If you are still not sure which and if you qualify for the first-time homebuyer credit and if you qualify for the maximum amount of credit, contact the IRS or your tax advisor.
If you are a first-time homebuyer and still on the fence whether to buy this year or not, perhaps this new credit will get you to jump off the fence and dive into homeownership. When you combine the tax credit with historically low interest rates, a great selection of homes, desperate sellers and low home prices, shopping for a home gets exciting.
NOTE: This blog is not meant as tax advice. Please consult your tax advisor for details about your particular situation. We are real estate agents, not tax advisors.
Kerstin G. Brooks
Brooks & Heinze Team
“Where People Come First”
Skyline Properties, Inc.
http://www.propertyinseattle.com/
Email: info@propertyinseattle.com
Kerstin G. Brooks, Broker 