The new Economic Stimulus Package recently signed in to law has some interesting applications for the housing market. One such application is the $8,000 tax credit for first time home buyers. But, not everyone understands the tax credit, so I will define it's major points here.

What is the definition of a "first time buyer"?: This bill defines a "first-time home buyer" as someone who hasn't owned a home as their principal residence for three years before buying the new house. The purchase date is the day that the title or warranty deed is conveyed. That means if you've owned a vacation home--but not a principal residence--within the past three years, you would still be eligible for the tax credit.

What is the amount of the tax credit?:This credit is equivalent to 10 percent of the purchase price of the home--although it's capped at $8,000--and applies only to first-time home buyers and principal residences. For example, if a home were to cost $64,000 then the amount of the credit would be $6,400. If the home were to be $97,500 then the amount would be the maximum allowable of $8,000. But unlike the plan unveiled in 2008 which gave a $7,500 home buyer tax credit, this one does not have to be repaid. The tax credit included in the economic stimulus legislation is much smaller than the one proposed by the National Association of Realtors, who asked for a $15,000 credit to be applied to all home buyers.

Are there income restrictions?: Yes, the tax credit is subject to income limitations. Single buyers need a modified adjusted gross income (MAGI)  of $75,000 or less to qualify for the full credit, that's $150,000 for married couples. Those earning more than these thresholds may be eligible for reduced credits.

When must I buy the property?: Only those who purchase a home on or after January 1 2009, and before December 1, 2009 are eligible for the tax credit. Anyone who purchased a home last year won't be able to take advantage of it.

Are there any repayment stipulations?: Buyers must own the home for at least three years in order to have the credit forgiven. If they sell the home before then, they will have to return the credit to the government. Possible exceptions will be made in certain extenuating circumstances, such as natural disaster, death or divorce.

Is the tax credit refundable: The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit.

For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000($8,000 minus the $1,000 owed).

This may be a simplified version of the tax credit and I would certainly advise anyone to consult their CPA for their own individual circumstances. But with one thing for certain;


1.An $8,000 tax credit
2.Mortgage rates hovering around 5% for a 30 year fixed term
3.Pricing beginning in the low $40,000 mark for a new or nearly new home

Can you honestly say that there has been a better time to buy?

Visit us at Hope4HomeBuyers.org and see some of the best that southwest Florida has to offer as far as homes are concerned. Search for your next home using our Personal HomeFinder, or get qualified to buy that next home (remember you have more leverage in negotiations with a letter of qualification in hand.)