The new $819 billion stimulus plan passed yesterday in the House, really is something for 1st Time Home Buyers to cheer about! The $7,500 tax credit that was part of the original stimulus passed last October did little to stimulate home purchase since the $7,500 was more of a 15 year zero interest loan with repayment terms of $500 per year.
This new provision makes the tax credit an actual "gift" from IRS to home buyers. No repayment necessary. What a bonus. If you have been sitting on the fence, trying to make that buying decision... Don't wait. If your purchase closes escrow before April 15th when your 2008 taxes are due you can take the refund now. If it closes after April 15, you'll have to wait until you file your 2009 taxes in April of 2010.
Another benefit; The $7,500 credit will come to you in the form of a check even if you paid no taxes. Paying income taxes is not a requirement.
So who qualifies? If you haven't owned a home in the last 3 years. There are also some income considerations: The credit phases out as income rises above $75,000 for singles and $150,000 for couples, and disappears entirely at $95,000 and $170,000, respectively.
Is there additional paper work? No everything will be done with your tax return filing and your tax advisor will help you. Do you need a tax advisor? I recommend that you do get an advisor, even if you have always filed your own returns. This way you can get advice about w-4 options and keeping money in your pay check at pay day as opposed to having the IRS "hold" your money and getting a substantial tax refund.
How can the $7,500 be used? -Any way you like. My # One Suggestion, put it in a "rainy day" fund. Keep it in you savings or put it in a short term CD. As a home owner there will likely be times when you'll need a home repair. Then the funds are there for this or any other "emergency" needs. If you haven't maintained a savings balance before, you will surprised by how liberating you will feel in having the cushion.
Finally, be sure you don't miss the close of escrow cut off dates: The House version is retroactive to the 1st of the year with escrow to be closed before the end of June 2009. The Senate version also retroactive to January 1st with the closing to be before end of August. An important note. Finally, to avoid repaying the $7,500 you need to keep your home for a minimum of 36 months.
As always, your comments are appreciated. - Ingrid
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