Over the last week, I've had a lot of people ask me about the New Tax Credit. This was part of the housing bill that President Bush signed at the end of July. As with any new bill, it takes a while to figure out all the kinks.
Good news is, if you are a first time home buyer (and a 1st time home buyer is defined as someone who hasn't owned a home in the last 3 years), then you can qualify for a $7,500 TAX CREDIT on your 2008 or 2009 taxes. I tax credit is better than a deduction because it is subtracted directly from the amount of tax you owe. The credit works on a primary residence that you purchase between April 10, 2008 and June 30, 2009. The tax credit is actually 10% of the purchase price, so if the house only cost $65,000, you would only receive $6,500.
There is nothing that you have to apply for in advance. The credit will be claimed by you when you file your income tax return.
There ARE income limits. If you make under $75,000 personally or 150,000 as a married couple you are eligible for the whole $7,500 amount. If you make up to $95,000 as a single and $170,000 as a couple then you have a "phased out" amount that you can claim. Over $95,000/$170,000 you get nothing.
A lot of people want to know how they can use the $7,500 credit for their down payment. Well, you can't. You don't get the money back until AFTER you file your tax return. So, you will still need to save up for that down payment. One thing you CAN do, though is reduce the deductions you claim on your W-4 (the withholding form at your employer), that way you will take home more money each month in your paycheck. If you are self employed, you can make similar adjustments on your estimated payments.
On thing to note is - this tax credit has to be paid back over the next 15 years. Starting with your tax return in 2010, an amount equal to 6.67% of the total credit you took will be added to the amount of tax you have to pay. This is a little over $500. There is no interest that will be added to it, so it is essentially an interest free loan, but you DO have to pay it back.
It seems like the more you know about these things, the more questions you have!! If you would like to learn more about the tax credit portion of the housing bill signed in July click here to read Frequently asked Questions published by the National Association of Realtors.
If you were waiting for something great to happen THIS IS IT. There is a good variety of Homes for Sale in Hoover Alabama. Interest rates are still low and now you get a credit - Not a deduction, so you will pay up to $7500 in less tax.
If you haven't already done so, now is the time to contact a lender and get pre-approved for a loan. You can shop for houses on line at my website www.ToniBird.com, When you are ready to Buy A Home in Hoover Alabama or the Greater Birmingham area, contact me and I'll help you find the home of your dreams.
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