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Check out this video to get all of the details on the extension of the first time home buyers tax credit.
$8000 Home Buyer Tax Credit
Last Friday, President Obama signed the law to make the extension official, after the Senate gave its approval and the House of Representatives voted overwhelmingly to pass the legislation.
The $8,000 first-time homebuyer tax credit was supposed to expire Nov. 30, 2009, but now it will be extended for contracts signed before May 1, 2010 that close before July 1, 2010. First-time buyers, who are in the process of closing now, no longer have to worry about qualifying for the $8,000 tax credit if they do end up closing after the Nov. 30 deadline. The new legislation also increases the income limit for couples with income up to $225,000, a nearly $55,000 increase above the current level.
But not only a time-limit extension was part of the new bill. The tax credit was also extended to include home buyers who already own a home. They can apply for a $6,500 tax credit for the purchase of another home. To be eligible, the existing homeowners must have lived in their current residence for five of the prior eight years and the eligible homes must be worth $800,000 or less. Both credits are available only for primary residences, not second homes or investment properties. The legislation took effect November 7, 2009 and is not retroactive.
The original first-time homebuyer tax credit jump-started the housing market, driving home sales to the highest level in more than two years. The National Association REALTORS® reported sales jumped 9.4 percent to a seasonally adjusted annual rate of 5.57 million units in September and are 9.2 percent higher than the 5.10 million-unit pace in September 2008.
Showing posts with label tax credit. Show all posts
Showing posts with label tax credit. Show all posts
Sunday, November 15, 2009
Sunday, March 01, 2009
$8,000 Income Tax Credit for First-Time Homebuyers--WOW what a deal!
The new economic stimulus bill which was recently signed into law has a tremendous benefit for first-time homebuyers – a credit of up to $8,000! This is phenomenal--basically a gift from the federal government if you buy a home this year before December 1.
The credit is 10% of the cost of the home up to a maximum of $8,000 and does not have to be repaid if the buyer lives in the home for at least three years.
This provision is the difference between night and day compared to the $7,500 tax credit that took effect last year for homes purchased after April 9, 2008. The 2008 credit had to be repaid over 15 years, which essentially meant it was an interest free loan. (See my blog of August 30, 2008, “First-Time Homebuyer Tax Credit Explained.”)
So, I repeat: under most circumstances, the credit does not have to be repaid.
The home must be purchased between January 1, 2009 and November 30, 2009. December 1, 2009 is too late! The date ownership legally passes to the buyer is the qualifying date.
Who is a "first-time home buyer?" People who have not had an ownership interest in a primary residence during the last three years are eligible. Ownership in a vacation home would not be considered a primary residence.
Income qualifications for the full credit are $75,000 or less if single or $150,000 for a married couple. Partial credit is available to singles with incomes between $75,000 - $95,000 or married people whose incomes are between $150,000 - $170,000.
This is a refundable credit taken on the buyer’s federal income tax return for 2010. For example, if you will have already paid your full tax liability through withholding, you would still receive a refund of $8,000. Another example: you owed $5,000 in taxes and your withholding was $6,000. Your refund would total of $9,000. Last example: you owed $5,000 in taxes and your withholding was $4,000. Your refund would be $7,000.
Another extraordinary provision of the new law permits the buyer to elect to treat the purchase as if it occurred December 31, 2008 and take the credit on his 2008 income tax return. Even if the return has already been filed, an amended tax return can be filed to obtain the credit. This is especially useful for buyers whose income qualified them for the credit in 2008 but may have too much income in 2009.
Of course, the situation can be turned around. If the buyer would be better served in taking the credit on his 2009 tax return, he can reduce his withholding or estimated tax payments now instead of waiting until tax time in 2010.
All in all, I believe this may be the impetus needed to get people off the fence and into a home. Interest rates are low, inventory is huge, and $8,000 means a lot to most people. And it is so much better than last years $7,500 credit that, as mentioned above, has to be repaid.
The sad part for first-time buyers who purchased last year is that their $7,500 credit still has to be repaid. There is no provision in the law to forgive that and simply avail oneself of the $8,000 credit that does not have to be repaid. I certainly commiserate with them – but who could have possibly foreseen what this year’s law would provide?
IMPORTANT NOTE: This is my interpretation of the basic provisions of the new credit. I have tried to simplify things to give a picture of how this credit works but I urge you to check with your tax professional or accountant for full provisions of the law.
In any case, if you have not owned a home in the past 3 years and are thinking of purchasing a home as your principal residence, now is the time to do so. There are a lot of homes on the market now in NW Arkansas and some very good deals (especially foreclosures and short sales). As the spring progresses a lot of these good buys will be snapped up.
For more information:
http://www.federalhousingtaxcredit.com/2009/faq.php#5
http://money.cnn.com/2009/02/13/real_estate/homebuyer_tax_credit_finalized/index.htm?postversion=2009021712
The credit is 10% of the cost of the home up to a maximum of $8,000 and does not have to be repaid if the buyer lives in the home for at least three years.
This provision is the difference between night and day compared to the $7,500 tax credit that took effect last year for homes purchased after April 9, 2008. The 2008 credit had to be repaid over 15 years, which essentially meant it was an interest free loan. (See my blog of August 30, 2008, “First-Time Homebuyer Tax Credit Explained.”)
So, I repeat: under most circumstances, the credit does not have to be repaid.
The home must be purchased between January 1, 2009 and November 30, 2009. December 1, 2009 is too late! The date ownership legally passes to the buyer is the qualifying date.
Who is a "first-time home buyer?" People who have not had an ownership interest in a primary residence during the last three years are eligible. Ownership in a vacation home would not be considered a primary residence.
Income qualifications for the full credit are $75,000 or less if single or $150,000 for a married couple. Partial credit is available to singles with incomes between $75,000 - $95,000 or married people whose incomes are between $150,000 - $170,000.
This is a refundable credit taken on the buyer’s federal income tax return for 2010. For example, if you will have already paid your full tax liability through withholding, you would still receive a refund of $8,000. Another example: you owed $5,000 in taxes and your withholding was $6,000. Your refund would total of $9,000. Last example: you owed $5,000 in taxes and your withholding was $4,000. Your refund would be $7,000.
Another extraordinary provision of the new law permits the buyer to elect to treat the purchase as if it occurred December 31, 2008 and take the credit on his 2008 income tax return. Even if the return has already been filed, an amended tax return can be filed to obtain the credit. This is especially useful for buyers whose income qualified them for the credit in 2008 but may have too much income in 2009.
Of course, the situation can be turned around. If the buyer would be better served in taking the credit on his 2009 tax return, he can reduce his withholding or estimated tax payments now instead of waiting until tax time in 2010.
All in all, I believe this may be the impetus needed to get people off the fence and into a home. Interest rates are low, inventory is huge, and $8,000 means a lot to most people. And it is so much better than last years $7,500 credit that, as mentioned above, has to be repaid.
The sad part for first-time buyers who purchased last year is that their $7,500 credit still has to be repaid. There is no provision in the law to forgive that and simply avail oneself of the $8,000 credit that does not have to be repaid. I certainly commiserate with them – but who could have possibly foreseen what this year’s law would provide?
IMPORTANT NOTE: This is my interpretation of the basic provisions of the new credit. I have tried to simplify things to give a picture of how this credit works but I urge you to check with your tax professional or accountant for full provisions of the law.
In any case, if you have not owned a home in the past 3 years and are thinking of purchasing a home as your principal residence, now is the time to do so. There are a lot of homes on the market now in NW Arkansas and some very good deals (especially foreclosures and short sales). As the spring progresses a lot of these good buys will be snapped up.
For more information:
http://www.federalhousingtaxcredit.com/2009/faq.php#5
http://money.cnn.com/2009/02/13/real_estate/homebuyer_tax_credit_finalized/index.htm?postversion=2009021712
Saturday, August 30, 2008
First Time Homebuyer Tax Credit Explained
There has been so much talk about the recently enacted “Housing and Economic Recovery Act of 2008” and its numerous, complicated provisions that I thought I’d take a few moments to summarize the part you are probably most interested in – the First Time Homebuyer Tax Credit.
You are considered a first-time homebuyer if you have not had any ownership interest in a home in the 3-year period preceding date of purchase.
Closing date of the home must be between April 9, 2008 and June 30, 2009.
The tax credit is 10% of the purchase price up to a maximum credit of $7,500.
A single person with income up to $75,000 qualifies for the full credit. Income between $75,000 and $95,000 qualifies for a prorated portion of the $7,500 credit.
Married couples with income up to $150,000 qualify for the full credit. Income between $150,000 and $170,000 qualifies for a prorated portion of the $7,500 credit.
The credit will be applied against income tax liability. When the tax return is compiled in the usual manner, the credit would be used to lower tax liability dollar for dollar. For example, if total tax liability was $9,000, the credit would reduce the liability to $1,500. This has nothing to do with how much withholding you may have already paid. If your tax liability was $9,000 and you had already paid in $9,000 through withholding, you would receive a check for $7,500.
If total tax liability was $1,000, and you had not paid any withholding, the excess credit of $6,500 would be refunded to the taxpayer.
There are no provisions to get the credit before filing the income tax return in 2009. However, a homebuyer who qualifies for the credit could immediately reduce his withholding at his place of employment (or reduce estimated payments to IRS).
But there is a catch. It’s not “free money.”
The credit has been referred to as an interest-free loan, and with good reason. The credit must actually be repaid at the rate of 6.67% ($502.50) per year for 15 years, beginning with the filing of the 2010 tax return in spring of 2011. No interest will be charged. Let’s say a taxpayer was due a refund of $1,000 on his 2010 return. His refund would be reduced to $497.50 after repaying $502.50).
If the home was sold at a profit before the 15-year payback period ended, the unpaid balance would be deducted from the profit before the proceeds were paid to the seller. If the home was sold at a loss, the balance of the payback would be forgiven.
If the taxpayer dies before paying back all the credit, the unpaid balance would be forgiven.
IMPORTANT NOTE: This is my interpretation of the basic provisions of the Homebuyer Tax Credit. I have tried to simplify things to give a picture of what is now available but I give no guarantees. There are many complicated provisions I haven’t touched upon. As with most new laws, many details will need to be worked out, defined, and applied. You should check with your tax preparer for further provisions of the law.
And whether it’s worth it for you to apply for the credit will depend on your personal financial situation. If you need money to tide you over these tough economic times, it may be worth your while. Just keep in mind that you do have to pay it back in future years.
For more information:
http://www.realtor.org/gapublic.nsf/files/hbtaxcreditqa2008.pdf/$FILE/hbtaxcreditqa2008.pdf
You are considered a first-time homebuyer if you have not had any ownership interest in a home in the 3-year period preceding date of purchase.
Closing date of the home must be between April 9, 2008 and June 30, 2009.
The tax credit is 10% of the purchase price up to a maximum credit of $7,500.
A single person with income up to $75,000 qualifies for the full credit. Income between $75,000 and $95,000 qualifies for a prorated portion of the $7,500 credit.
Married couples with income up to $150,000 qualify for the full credit. Income between $150,000 and $170,000 qualifies for a prorated portion of the $7,500 credit.
The credit will be applied against income tax liability. When the tax return is compiled in the usual manner, the credit would be used to lower tax liability dollar for dollar. For example, if total tax liability was $9,000, the credit would reduce the liability to $1,500. This has nothing to do with how much withholding you may have already paid. If your tax liability was $9,000 and you had already paid in $9,000 through withholding, you would receive a check for $7,500.
If total tax liability was $1,000, and you had not paid any withholding, the excess credit of $6,500 would be refunded to the taxpayer.
There are no provisions to get the credit before filing the income tax return in 2009. However, a homebuyer who qualifies for the credit could immediately reduce his withholding at his place of employment (or reduce estimated payments to IRS).
But there is a catch. It’s not “free money.”
The credit has been referred to as an interest-free loan, and with good reason. The credit must actually be repaid at the rate of 6.67% ($502.50) per year for 15 years, beginning with the filing of the 2010 tax return in spring of 2011. No interest will be charged. Let’s say a taxpayer was due a refund of $1,000 on his 2010 return. His refund would be reduced to $497.50 after repaying $502.50).
If the home was sold at a profit before the 15-year payback period ended, the unpaid balance would be deducted from the profit before the proceeds were paid to the seller. If the home was sold at a loss, the balance of the payback would be forgiven.
If the taxpayer dies before paying back all the credit, the unpaid balance would be forgiven.
IMPORTANT NOTE: This is my interpretation of the basic provisions of the Homebuyer Tax Credit. I have tried to simplify things to give a picture of what is now available but I give no guarantees. There are many complicated provisions I haven’t touched upon. As with most new laws, many details will need to be worked out, defined, and applied. You should check with your tax preparer for further provisions of the law.
And whether it’s worth it for you to apply for the credit will depend on your personal financial situation. If you need money to tide you over these tough economic times, it may be worth your while. Just keep in mind that you do have to pay it back in future years.
For more information:
http://www.realtor.org/gapublic.nsf/files/hbtaxcreditqa2008.pdf/$FILE/hbtaxcreditqa2008.pdf
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