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60 Days Left To Qualify For The $8,000 Tax Credit?

By
Mortgage and Lending with Advantage Mortgage Inc NMLS 1770599 , Originating loans in CA, OR and WA. NMLS 11911

If you, or anyone you know, have not owned a principal residence in the last 36 months your opportunity to get a free $8,000 gift from Uncle Sam is quickly disappearing. To qualify for the tax credit you must close escrow on a home on or before Monday, November 30, 2009. That gives you about 60 days to find a home and get into contract so you can comfortably beat the deadline.

The Housing and Economic Recovery Act of 2008 makes it possible to get a “refundable tax credit” of 10% of the purchase price of the new house up to maximum of $8000. Thus in order to get a full tax credit of $8000 your purchased property must be above $80,000 in price. While “refundable” sounds like you have to pay it back the term “refundable” really means you get the full credit even if you owe no taxes. The credit will reduce your taxes owed or increase the amount of your refund dollar for dollar.

While the deadline to close escrow on a home is November 30, eligibility for one of the two tax credits (remember this started as a $7,500 repayable tax credit) extends back to homes closed on or after April 9, 2008. Keep in mind the “purchase date” to you and I would normally mean the day you signed the contract but the IRS defines it as the day you closed escrow and the property was recorded in your name. That will become a critical distinction; I’m sure, as this program expires. We’ll see a rush to close home transactions in the last weeks of November.

One of the biggest misunderstandings of the program is over the term “first time home buyer.” To the IRS that means an individual who has not owned a principal residence within the last three years. If you own a home but do not reside in said home, but rent it out instead, you would qualify as a “first time home buyer.”

The full credit is only available to individuals with a modified gross annual income (MGAI) of $75,000 or less and for married taxpayers with MGAI of $150,000 or less. The tax credit is gradually reduced to zero for individuals with MAGI between $75,000 to $95,000 and for married taxpayers with MAGI between $150,000 to $170,000. Your adjusted income for tax purposes is often times, but not always, less than your gross wages as reported on your W2.

A frequent question we get is how can you apply this tax credit to your down payment so you don’t need as much money to close escrow? The answer is there isn’t a way – at least in the state of Washington. Some states have made funds available as sort of a short term loan, repayable when you get your tax credit, but the Washington Housing Finance Commission was not able to develop a program. The best suggestion I have to limit your cash out of pocket is to make sure your real estate agent and lender structure your transaction to minimize your out of pocket expenses. There are just a few little known ways to accomplish this.

While there are lots of details that can’t be covered in the space of this post, two important ones are that you will not qualify for the credit if you purchase a home from a direct relative and you will have to repay the credit in full if you rent out the home within 36 months of purchase.

An important distinction is that this is an IRS program – it has nothing to do with loan programs or lending guidelines. I strongly recommend you speak with a tax professional if you have specific qualifying questions as they are the only ones with the expertise to do so.

If you have already purchased your first home, and it closed escrow anytime after April 8,, 2008 don’t forget to file for the credit when you complete your 2009 tax returns!

The IRS provides a remarkably great web page with all  the pertinent details of the $8,000 Tax Credit for First Time Home Owners.

If there is any inside info about lending or real estate you’ve been curious about, please send an email to MMullin@TheLoanConsultant.com, or give me a call at 509-252-9151. I’m passionate about real estate and mortgage lending, and would be happy to share my knowledge with you!

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