For solid sustainable economic growth, we need the housing market to improve. When the housing sector strengthens, it brings jobs. Without jobs there will be no recovery. The tax credit has been put into place to create an incentive for people to get off the fence and purchase a home.
Currently there are two kinds of tax credits in place. One credits up to $8,000 for first-time buyers of a principal residence who have not owned another principal residence during the previous three-year period ending on the date they purchase the new home.
The other is a credit or up to $6,500 for buyers who owned a principal residence for five consecutive years during the past eight-years preceding the purchase date. In order to receive the credit, the new home must be under contract no later than 30 April 2010 and the sale must close by 30 June 2010. There is an extension for military personnel returning from overseas tours.
It's important to understand that a tax credit is not the same as a tax deduction. A credit lowers a person's taxes dollar for dollar, while a deduction merely reduces the amount of income a person is taxed on. A tax credit of $8,000 reduces taxes by that amount, no matter what the income or what tax bracket that person is in. Even someone who did not have to pay any taxes will get the tax credit. It will come in the form of a check from the IRS.
While the tax credit is a powerful incentive that many people have already taken advantage of. It should not be a reason to jump into a home purchase. Like I stated at the beginning. It is an incentive for people to get off the fence. It's for buyers who are considering a home purchase anyway, but are waiting around in hope for the market to drop even lower.
If you are considering a home purchase in the near future, you might want to keep the deadlines for the tax credit in mind. In order to be under contract by April 30th, the time to get the home shopping process started is now.
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