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"UP TO" $8000 - it is not an across the board $8000 first time home buyers tax credit.

One of the common misconceptions for home buyers (and some real estate professionals) is that the first time home buyers tax credit is $8000 for all buyers.

When reading the fine print of the IRS form 5405 there is an entry line to fill out asking for the smaller of 2 items: $8000 or 10% of the purchase price.

An example: Mr. Smith purchases a home for $65,000. If he meets the criteria to receive
the 1st time home buyers tax credit he would enter $6500 on line #1 of form 5405. If Mr.
Smith purchased a home for $90,000 then he would enter $8000 on that line.

IRS tax form for 1st time home buyers credit

Reiterating: The tax credit is for 10% of the purchase price of the home up to $8000. It is not a full $8000 for every home buyer.

Let's all help to stop the confusion to home buyers by using the words "Up to" in our articles.

Edit: The chart that NAR put out for their members to use states "$8000" but it doesn't say "Up to $8000". You may want to add the language to your own charts for accuracy.

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Posted by Kris Wales - Macomb County MI real estate blog & homes for sale search site on 11/09/2009 05:36 AM

Comments (85)

First Time Home Buyers Tax Credit Extended in the Home Buying Channel

1st time home buyers tax credit in macomb county

Originally posted at: Macomb County MI real estate - 1st time home buyers info & advice: "UP TO" $8000 - it is *not* an across the board $8000 first time home buyers tax credit.

This post has been included in Michigan Information Macomb County, MI Information

85 Comments on "UP TO" $8000 - it is *not* an across the board $8000 first time home buyers tax credit.

NOV

This is good information. there are many buyers who have misconceptions about the credit.

Gita, There are so many buyers here in Metro Detroit purchasing under $80,000 that we really need to explain to them they won't receive the full $8000. I've been using "Up to" in my wording for quite a while because of this. Thanks Gita.

Kris,

You're right, of course. Even though its not a problem in many parts of the country, we do have to remember that "the devil is always in the details."

Rich

Rich, You're right, I'm sure some areas of the country don't have any homes or condos for sale under $80,000. Here, it's the norm for buyers, especially first time home buyers. ( Their mortgage payments are less expensive than rent.)

Thanks for sharing that the home buyer tax credit program was extended. Go sell homes

Harry, Thanks. I will.

Good information and a must read for all Realtors. . thanks

Good information. That for posting it. I remember reading that at one time but it did not stick...now it has.

Kris,

Excellent point.

In my market, where the absolute rock bottom condo starts at about $90,000 currently, it is less applicable. But that does not eliminate the need to point out the fact that an $80,000 purchase is required to gain the entire credit.

Kris, you are correct it is UP TO 8000.00 not a guaranteed 8000.00 it depends on the sale price. On a 60K house it would be 6000.00. This is important for all realtors to know and advice folks on.

Kris,

You are making a very valid point. I have tried to remind buyers UP TO $8K but many buyers only want to hear $8K!! And you are right that is what many Realtors hear and we need to clear up this confusion. Good post.

Hi Kris, I truly stopped by just to say hi because I have been away from AR for a while. This is such a good point! Many buyers misunderstand and think all get the full $8,000!

Good information. It also depends upon their income and whether they are single or married too. Thanks for the post. Many buyers don't understand the process.

Kris,

Some homes in Cleveland or Detroit would have a tax credit of less than $1,000, wouldn't they?

Mike in Tucson

I was not aware of this either. AR is such a great place to learn.

Kris, Excellent post. I am not an accountant, but isn't it also tied in with whether or not the buyer had any tax liability for the year?

Fernando, Thanks. I think the "up to" gets lost in the hype.

Pat, Glad I could help you to make it stick :-)

Mike, In alot of markets around the country it wouldn't matter. In ours it most definately does!

Missy, It's one of the first things I talk about in initial conversations. All buyers think "$8000" and in our market, that's not always the case.

Dorie, We just have to keep preaching it :-)

Diane,   Always good to see your smiling face :-)

Joyce & Terry,   I always give my clients the link to the IRS site for clarification and ask them if they have someone prepare their taxes. Usually it's pretty straight forward, but there is other criteria they have to meet as you stated.

Mike, You betcha. In Metro Detroit there are many homes for sale under $10,000. So the credit could be in the hundreds of dollars, not thousands.

Angelica, Glad it helped :-)

Barb,   From what I've read, if a buyer owed taxes it would be applied to the amount owed first. You would think that would be self explanatory to buyers, but it isn't. Always best to check with an accountant.

Thank you to whomever featured this article. In many markets, there aren't homes/condos under $80,000 so it wouldn't make a difference to the professionals here. But in quite a few markets there are homes under $80,000 and it will be helpful to know this. Much appreciated!

Its always important to read the legisation and know what you are talking about!

Great idea - consider it done.

Thanks!

Dawn in York Pennsylvania here!

Great point! If the buyer is purchasing a home for 20,000 they will only get 10% of that purchase price.

You are correct. 10% up to $8000k. We must let buyers know if the home purchase is under 80K

Good point to remember to remember to say 10 percent of the purchase price of the home up to $8,000.

Kris, Homes here aren't priced that low so I didn't know this. It's the first time I've heard of this and I'll bet I'm not alone. Thank you for the information!

Kris -- you are good to post this again. I pointed this out many times and AR members just continued to print incorrect information. It is important we get our facts out to the public in an accurate fashion. Even when I posted this information on several posts, people didn't correct the information. I see incorrect information on many listings as well.

Kris,

I had someone call to complain that the government was not sending her check quick enough.

Richard

Kris, you are correct ! Thanks for the reminder as the press has been very liberal in their promotion of the tax credit !

We have homes (esp. foreclosures and short sales) that are below 80,000. I've been preaching this since the tax credit came out. You have to be very careful when speaking about the tax credit with clients.

My friend in Phoenix has a blog and tweet where you can vote on the tax credit. Surprise! Most of the agents don't agree with the NAR and the lobbyists that pushed it through and had it attached to unemployment benefits.

Kris: Thanks. Out here we rarely have this problem The least expensive home a friend of mine bought this year was for $90,000 and she didn't qualify anyway! Thanks again for the heads up!

Kris: We take time to explain the details, too. There are lots of people who have no idea it is available much less the fine points. Congrats on the feature!

GREAT point, Kris! I had one of these: $67,000 purchase. Told the client upfront they were limited. Thank goodness I did, because they were "convinced by friends" they were entitled to the full credit.

Thanks so much for getting this information out today to AR memebers. Good reading....so true!!

Patricia /Seacoast NH

Thanks so much for getting this information out today to AR memebers. Good reading....so true!!

Patricia /Seacoast NH

How can you use the tax credit as a downpayment?

Kris Wales=Sherlock Holmes! Excellent investigative work, my dear Watson!

It's a pity that so many homebuyers are only going to find out this discrepancy when they sit down with their accountants and file.

Great post and thanks for the explanation...congrats on your well deserved feature.

Yea I think we need to be carefull on what we tell our clients they will get or won't get. Best to send them to the site you mentioned, thanks for the info.

Hi Kris ~ Great point. Not much to be had around here for less than $80,000, but I'll certainly be sure to include the "up to" in my advertising in the future just to be sure that clients are aware that the $8000 is not a given.

Denise

I am "up to" here with confusion about the tax credit, and "up to" here with paying people who can't afford homes to buy them. I am also "up to" here with the market in its current form and can't wait till sanity returns to the process. How many "up to's" am I up to? More than two? Word UP!

You are right, it is up to $8,000. We have to remember that there are parts of the country where you can buy home for under $80,000. Nice reminder for all.

Here in San Diego, many buyers do not realize that there are other guideline that must also, be met like the annual income. If the buyer is making more than a certain amount they do not qualify.That is tough one to get across also

Great info for the credit and expounding on the amount.

I've also had buyers not understanding the "tax credit" part of the program. They thought the government was going to hand them $8,000 now to be used in the purchase of their home--either as a check or a credit at settlement. Big Surprise when they realized they wouldn't see the benefit until after April 15, 2010. (A qualified person can get a loan for the anticipated credit amount, to be paid back after April 15.)

You are correct. With so many bank owned sales and lower sales prices this can confuse a few folks.

Thanks for making that clear. In a lot of markets I bet people are buying homes less than $80,000 where that applies. This can be confusing.

Nice. Everyone is always under the misconception that it is 8k for all. Great clarification!

This is another reason why Richard Werisser's idea of changing the credit into a deduction makes so much more sense. It avoids all of this confusion as to how much and when it applies.

Kris this is a great post. There is a lot of confusion with the new tax credit. We just posted a video that discusses 6 home buyer tax credit myths.

Accurate info is so important, and with buyers making life-changing decisions based on the credit, we want to make sure they know exactly how much they can get.

An excellent point that cannot be repeated enough!! Along with the income restrictions. There's just so much more to this credit than some people are taking the time to understand. Hopefully if we say it enough, they will hear it and get it!

Very good point ! :) We don't want to dissapoint our buyers.

Thanks for the reminder!!

If you are a member of NAR they published a great info sheet a long time ago that pointed out all of these issues. I gave them out left and right, and I advised anyone who was considering using the credit to speak with their TAX EXPERT. Unless an agent is also qualified to give tax advice, that is the best way to go in my opinion.

Even the National Association of Home Builders put out a Q & A sheet on the credit. Hopefully they will do the same for this new and expanded version. I was the only one in our office to print these up and no doubt a lot of agents around the state and the country mistakenly told their customers they would get $8,000. No a good idea, in my book.

Customers want correct information and should be getting it from the best authorities. Sometimes we are those authorities, but often we need to direct them to other sources.

Thank you. I email links out, so that the realtors and buyers get the correct info. Try www.federalhousingtaxcredit.com. Excellent in formation for all.

This is true but in practice (at least here in the Seattle area) you won't find many homes under $80,000 to begin with. Most buyers, then, will in fact be getting all $8,000. But I suppose it's worth noting.

"Jim", I agree. Best to read all of it then just the headlines. We'll be able to counsel our buyers accurately. Thanks Jim.

Tom, You're welcome :-)

Dawn, You're correct. The buyer in your example would receive $2000 if they qualified for the tax credit.

Richard, We'd better let buyers know or we'll be hearing about it later :-)

Beverly,   Those 2 words "Up to" conveys what buyers need to know. Thanks Beverly.

Carole,   The hype of the headlines oftentimes doesn't contain the full knowledge. In many areas, like yours, there arent' homes available for the lower prices. But one is better off knowing this, and conveying this.

Joan,   I've pointed it out also, and like you, the article isn't edited to add those words. Oh well, we can lead a horse to water... :-) Thanks Joan.

Richard,   Ok. You made me laugh :-) Did you give her the toll free number to the IRS?

Michael, Not only the press, but the NAR and local associations also. Most aren't using the "Up to" in their charts and printed info.

Darryl,   You betcha. That's why I go over this with my buyer clients AND direct them to the IRS site with the full breakdown.

Greg, I wasn't trying to make this a political "Do we agree with the tax credit or not.." article. It was written to get correct info out there to counteract the incorrect and misleading info.

Paul, You're welcome. At least you know about it now in case you do have further decline in your area market.

Bonnie & Terry my western Michigan friends,   Your market is much like mine, and I'm sure you have your share of under $80,000 first time home buyers. Glad to hear that you are thorough in explaining this, but that doesn't surprise me. You 2 are always thorough!

It's good to be precise in this situation since so many homebuyers are under 80,000.

Ann,   I always want to tell buyers "Don't listen to family & friends, ask me instead." but I don't like to sound pushy. In these instances though, we need to be pushy to get the truth out!

Patricia, You're very welcome. Thank you for reading and commenting.

To the anonymous writer:   To my understanding there isn't a program available in Michigan that allows for the tax credit to be used as a down payment. This is where the problem comes in: The tax credit can only be issued after you have purchased a home.   In order to have those funds advanced (so to speak) a lender or non-profit agency would have to advance the money as a loan, to be repaid upon your receipt of the tax credit. In Michigan we haven't seen that, in other states it may be possible. Talk to your bank, credit union or trusted mortgage professional about this please.

Scott,   The buyers agent will be in for a shock when they get a phone call from a previous buyer angry because this wasn't explained to them. You know it's going to happen, it's only a matter of time. Thanks Scott. Signed, Sherlock Kris :-)

Tim,   Thank you. Glad you found it helpful.

Bob,   I agree, it's always best to send them to the information that is accurate. Thanks.

Denise,   You're a smart lady :-) Who knows, you may have that rare under $80,000 buyer and you'll be glad you provided accurate info.

Kyle,   I didn't intend this article to be a political back and forth about the tax credit, but there are days I also am fed up to.. :-)

Kate,   Many parts of the country have this type of market, not all, but many. Thanks Kate.

Lorraine and Loretta,   You bet. There are other qualifications. Best to send people to the IRS site for clarifications. The gross income was increased for this extended credit, but people need to know the details.

Sally,   Thank you. Good to see you.

Diane, In my neck of the woods there isn't a loan for this credit. No one is doing that. It is a surprise to many home buyers to realize this credit doesn't come until after purchase and after you file your tax returns.

Nicholas,   It's confusing more than a few. I recently had a buyer purchase a $35,000 house. She was surprised when I told her she wouldn't be getting $8000 (as this is what she kept reading with all the hyped headlines.)

Kristi, You're welcome. Here it is so common place that I think local agents to me are informing buyers upfront.

Melissa,   I can understand why people would be confused. If I wasn't in this industry I would believe the headlines. That's all people talk about..$8000..it's misleading.

William,   I really liked that idea myself. (And also proving that you purchased a house!!) It would save on the confusion.

The Kasey Group,   Thanks for posting the link, I'll check it out.

Michelle,   If buyers are purchasing now solely because of the credit they should know all the ins and outs..all of them. Thank you.

Dawn,   I'm going to create my own chart - one I hope will be less confusing for people. Thanks Dawn.

Alyssa, No, we do not. That's the last thing a buyers agent wants to do.

Stephanie, You're welcome. Thanks for reading and commenting.

Kris,

Nicely explained. Our job is all about accuracy and this is no exception. Especially as homes can be bought for as low as $20,000! There was even 1 sold about 20 miles away from me for a single dollar. He is not going to get much of a tax credit!

John,   I think the builders association put the first one out online and it was good. Very accurate. NAR has a chart now, but they forget to add "up to" :-) I'll be working on my own tomorrow morning.   You're absolutely right, direct them to the sources that are accurate and pertain to them. Not the hyped headlines :-)

Kyle,   Thanks for the link, I'll check it out.

Casey,   If it doesn't apply in your area, you don't have to note it. Many areas of the country though have sales under $80,000. That's why I wrote this.

Allen,   Thank you. Sounds like your area also sees the first time home buyers spending under $80,000.

Corinne, Thanks. No, I wouldn't imagine that the buyer of that home will bother to claim the credit for a 1 cent refund :-)

Great post. Thanks for the reminder. Amazing how improtant those "little" words can be.

It is very important that we as professionals understand this and convey the information properly to our clients and customers. If we dont get it, how will they?

Thanks for the reminder.

Yes! Thank you for posting this! I sell some homes for $4,000 sometimes and I am always surprised when the buyer mentions how they want to get the $8,000 tax credit. Thanks for helping to educate everyone!

Thanks for pointing that out. There are still some areas here in Sacramento where this would apply.

Kris, I appreciate your clarifications through this blog post. Your post the other day on this issue was also very good. The devil is in the details here & when dealing with issues that impact people's tax liability, accuracy is crucial.

I sent out an email to my agents giving the run down of the tax credit and wouldn't you know the very next day I saw a post by one of them stating that the dates were May 1 and July 1....when I corrected him he acted as though I was nit picking.

We do have to make sure we advise clients with good info. It is easy to talk about the maximum.

If the buyer purchases an $80,000 property but only owes $5,000 in federal income tax, does the $3,000 extra tax credit carryover into subsequent years or is it lost? Or can it also be applied to social security tax liability?

Kris,

I had realized this previously. However, in Orange County, even with a big drop in price, you would have to try hard to buy anything under $80,000.

From the desk of David Dee,

Kris, I noticed that "up to" credit as well. However, I don't believe we have issue here as there is nothing under 100k but it would have been nice. Good post and reminder.

NOV

During a recent buyer counseling session, the confusion of the credit was evident. "So, can I get the $8,000 at closing?" was Holly's question. Um, no. Then the reality that they will have to wait months before the credit money will be in their hands. Glad to have had that discussion at the begin of our journey not the end.

Ken,   Thank you. Glad you stopped by.

Rhode Island real estate,   We should be sure we're explaining it correctly, and sending them to those that can clarify. (Accountants, IRS web site, etc.) Thanks.

Katie, I can see how buyers would be confused, the hype all says $8000 as if it is a flat rate. Your buyer must have thought they hit the jackpot!

James, You're welcome. Glad it helped you.

Lola,   Thank you. We're in different waters here now, compared to 10 years ago. More details than ever, so we need to be on top of these things.

Damon, Ughh...I bet this same agent would come to you for help if a buyer wanted to sue him for misinformation :-)   He wouldn't think you were "nit picky" then..

Terry,   You betcha. Good to see you.

Paul,   That would be a good question for an accountant, and I'm not an accountant :-) I wouldn't touch that question for my buyers client but refer them to their tax professional.

Christine,   Then you wouldn't have to worry about it, unless your prices decline further.

David Dee,   Sounds like other areas of the country where this wouldn't make a difference.

Joe, I bet you were glad to hear that question at the initial meeting and not at the closing table :-)

Kris,

I didn't Know there was a 10% clause. It would have little or no impact in my market...average price $250,000.

Wow - wish I could find a house for $65,000 in our area. Good point that it should be included on the summary though because I guess it could be possible.

Kris, this post is probably saving a home buyer, some where, some grief because of the expectation of receiving the full $8,000. Great Post

Here is another good link for those looking to get the more difficult questions answered.

http://www.irs.gov/newsroom/article/0,,id=206294,00.html

NOV

Rich,   It sounds like you won't have to worry about the accuracy of the articles on the tax credit. Many markets don't. Thanks.

Kevin and Monica,   In many markets (like mine) it is very common. Thank you.

Mario, If more people would write about this perhaps it would help to counteract the multitude of "$8000" posts. Thanks Mario.

Kyle,   Thanks so much for the link. I have it bookmarked and will definately use it. Much appreciated.

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