May 07, 2009

First Time Buyer Tax Credit

Posted to Kathy Mardiros, Real Estate Tips

Part of the economic stimulus package includes a tax credit to first time home buyers. The credit is designed to encourage first time buyers to purchase now. Combine the tax credit provided with historically low interest rates and falling home prices and first time buyers could lead the way to economic recovery.

When first time home buyers purchase, it often starts a chain of events leading to additional home purchases. Oftentimes sellers are unable to purchase a move up home until a buyer is found for their present home. By enabling a first time buyer to begin the chain of events, often multiple home sales result - one of the things economists point to as a sign of the beginning of the economic recovery.

Paula Iacomini of Executive Metro Mortgage (paula.iacomini@prospectmtg.com) provides the following information on the first time home buyer program:

One of the most exciting provisions of the Housing and Economic Recovery Act of 2008 was the First-Time Homebuyer Tax Credit. The credit was expanded as part of the most recent economic stimulus bill (The American Recovery and Reinvestment Act of 2009). The credit is designed to encourage first time home buyers to go ahead and make the leap to purchase their first homes. Combine this tax credit with the fact that home prices and interest rates are at historical lows, and it is indeed an ideal time for many first-time homebuyers to purchase a home!

Here are some things to keep in mind:

A first time homebuyer is defined as someone who has not owned a home in the last three years.

Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

You cannot purchase the home from a related party like a spouse, direct ancestor, or direct lineal descendent (child or grandchild); however, you can still qualify for the credit if you purchase a property from siblings, nephews, nieces, and others.

If you are married, both spouses must be first-time home buyers.

If more than one unmarried individual is buying the property, the credit can be split up among all the individuals who qualify. However, the total credit taken cannot exceed $8,000 for homes purchased in 2009.

The credit amounts to 10% of the purchase price of the home, not to exceed $8,000.

The tax credit does not need to be paid back if you continue living in the home as your primary residence for three years without selling it.
How does a tax credit work?

A tax credit is a special provision that reduces income tax liability on a dollar for dollar basis. When filing a tax return, you must include income items, deduction items and the number of exemptions, among other things, to figure your total tax liability. For example, if your total tax liability for the year is $8,000, and you qualify for the full $8,000 tax credit, this credit would wipe out all of the tax due. If your employer already deducted the $8,000 from your pay checks throughout the year, you would receive a tax refund of $8,000. If you owe less than $8,000 in taxes for the year, you are still eligible for the full $8,000 credit when you file your tax returns. In that case, the IRS will write you a check for the difference between $8,000 and your actual tax bill.

Should you be considering your first home purchase, give me a call at 925-287-0550, and I will introduce you to Paula as well as a real estate agent who can assist you in your home search.

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