If you are considering buying real estate for the first time, the government is hoping to provide you an incentive to buy. For those that qualify, an income tax credit up to $8,000 is available.
The President is expected to sign into law later this week theAmerican Recovery and Reinvestment Act (ARRA). The purpose of the new legislation is to stimulate the overall economy. One of the provisions is directed at stimulating the real estate market by encouraging the purchase of houses. For first-time home buyers, an income tax credit equal to 10% of the cost of the home up to $8,000 is available. This new legislation actually extends and revises a similar credit that was available to first-time homebuyers in 2008.
The credit is not available to everyone. You must meet the following criteria to realize all or any portion of the credit.
Criteria for Eligibility
- A first-time homebuyer includes any purchaser who has not owned a house for at least three years. The first-time home buyer credit is available to those who have never owned their primary residence as well as to anyone who has not owned a residence for at least three years prior to the purchase. For a married couple, both spouses must qualify as first-time homebuyers to receive the credit.
- House must be used as principal residence. You can not receive the credit for the purchase of a second home for yourself or a primary residence for your parent or your child. You must be the owner and you must use the house as the principal residence for you and your family. Any single family residence will qualify, including condominiums, townhouses, and co-ops.
- House must be purchased during the first eleven months of 2009. The tax credit is available for a residence purchased on or after January 1, 2009, and before December 1, 2009.
- Income limitations for eligibility. To receive the full credit, the adjusted gross income of the purchaser can not be more than $75,000 for single tax filers or $150,000 for joint tax filers. The credit phases out between $75,000 and $95,000 for single filers and $150,000 and $170,000 for joint filers.
How Do You Get the Tax Benefit?
For eligible homebuyers, you will receive your tax credit when you file your 2009 federal income tax return due on April 15, 2010. This means that the credit will first reduce any federal income tax owed for 2009. Any amount in excess of the tax due will be returned to you as a tax refund.
It is important to note that this home buyer incentive does not provide immediate funds to assist with the purchase of the house. You will still need to accumulate sufficient money for the down payment and for the closing costs in order to complete the purchase. However, to receive benefit of the tax credit earlier than when you file your taxes, you may want to consider reducing the federal tax withheld from your paycheck during the remaining months of 2009 after the purchase. This will allow you to increase your take-home pay over the remaining paychecks for the year by the amount of the anticipated tax credit.
Warning…Recapture if Sell Too Early
If you sell your home within three years, the entire amount of the tax credit that you received is recaptured at the time of the sale. In other words, the closing documents will require the full credit amount be returned to the government from the proceeds of the house sale.
Author: Elaine E. Bedel, Bedel Financial Consulting, Inc. - Source
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