Buying A Home - How Does The Tax Credit Work?

On February 17^th, President Obama signed the American Recovery and Reinvestment Act into Law. Over the last week, I've had several people ask me about the new tax credit.  This is similar to the housing bill that President Bush signed at the end of July but better.

If you are a first time home buyer (and a 1^st time home buyer is defined as someone who hasn't owned a home in the last 3 years), then you can qualify for an $8,000 TAX CREDIT on your 2009 taxes.  A 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 January 1, 2009 and December 1, 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.  The credit will be claimed when you file your income tax return. If you owe less than 8,000 in taxes, you will get CASH BACK to use on whatever you want.

A lot of people get excited because they think they can use the 8K 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.

There ARE income limits.  If you make under $75,000 personally or 150,000 as a married couple you are eligible for the whole $8,000 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.  Also, if you sell the house within 3 years (and just about everybody stays in their house for at least that long) you have to pay the tax credit back.

Wow what a wonderful gift from Uncle Sam.  Interest rates are still low and now you get a credit - Not a deduction, so you will pay up to $8000 in less tax with your 2009 return.

 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, contact me and I'll help you find the home of your dreams.