If you are a First Time Home Buyer, You are Eligible for an $8,000 Tax Credit!
As part of the recent US government stimulus, the First Time Home Buyer Tax Credit has become a cash payment that does not have to be repaid. That’s right…no repayment! This is a pretty exciting development for someone considering a home purchase in 2009 (it’s only in effect through December 1, 2009). Now, this program is only for first time home buyers (or those who’ve not owned a home in the past 3 years). Interestingly, you can actually get access to this credit BEFORE you file your 2009 taxes, so you can use the money to help you buy the home now! To ensure you have the information you need, I’ve compiled the top 5 most frequently asked questions about the program below.
- Who is eligible to claim the tax credit?
If you are a first-time home buyer purchasing a new home or a resale—you are eligible for the tax credit. The purchase must take place on or after January 1, 2009 and before December 1, 2009 to qualify for the tax credit. As it applies to the tax credit, the purchase date is the date when the home closes and the title to the property transfers to the home owner.
- What is the definition of a first-time home buyer?
The tax credit law defines a "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. If you are married, both spouses cannot have owned a home.
For example, if you didn’t own a home but your spouse did, you do not qualify. For unmarried purchasers, the credit amount can be given to any buyer who qualifies as a first-time buyer, for instance, if a parent jointly purchases a home with a son or daughter. If you owned a vacation home or rental property not used as a principal residence you are not disqualified as a first-time home buyer.
- How is the amount of the tax credit determined?
The tax credit is 10 percent of the home’s purchase price, however, there is a maximum $8,000 credit.
- Can you give me an example of how the partial tax credit is determined?
There is a $20,000 difference between those who are eligible for a full tax credit and those where the credit is reduced to zero. If you take the amount you are over the limit by and divide it by the 20,000, this will give you the percentage that you are over the limit by. Subtract that number from 100% and then multiply it times the $8,000. That will give you your tax credit amount.
For example: A married couple has a modified adjusted gross income of $165,000. Their income exceeds $150,000 by $15,000. Dividing $15,000 by $20,000 yields 0.75. This means they are over the limit by 75% and so are eligible for a tax credit of 25%. Multiplying $8,000 by 0.25 shows that the buyer is eligible for a partial tax credit of $2,000.
Please remember that this is an example. You should always consult your tax advisor.
- Is there any way for a home buyer to get the money before they file their 2009 tax return?
Yes. If you believe you will qualify for the tax credit you can reduce your withholding taxes on your paycheck by adjusting your withholding amount on your W-4 via your employer or through your quarterly estimated tax payment. You can put this saved money aside to use as a down payment.
IRS Publication 919 contains rules and guidelines for income tax withholding. Please note that if the qualified purchase does NOT occur, then you will be liable for repayment to the IRS of income tax and possible interest charges and penalties. Consult your account prior to doing this.
There are a lot more questions and more information out there about exactly how this program works and about how you can use this program for your specific situation. Read the full FTHB Tax Credit 20 questions and answers list. And remember to consult a qualified home mortgage expert for counsel on your specific home buying situation!
Credit: Cameron Moss
Flagship Mortgage Corporation
“Expert Real Estate Finance”
Batesville, Indiana Branch Office
cmoss@flagshipmortgage.net
www.indianaloantips.com
