It's been nearly a month since President Barrack Obama announced his Stimulus Plan, which includes an $8,000 tax credit for first time homebuyers. Some critics claimed it wasn't enough, especially since original drafts of the plan included a $15,000 credit. Other were disappointed that only first time homebuyers could benefit. Builders of new homes were disappointed on both scores. The plan as noted in the chart below has some income restrictions. The credit cannot be used as a down payment. It doesn't have to be paid back. It will be applied against the homeowners' tax liability; if they owe less the $8,000 tax, they receive the rest back in a check from the government.
With its imperfections, will the plan help stimulate the housing market? The National Association of Realtors (NAR) thinks so; in fact the prestigious real estate group upped its estimate of how many would be helped from 200,000 to 900,000 over the past few weeks.
|
2008 Plan |
2009 Plan |
Effective Dates: |
4/9/08 - 7/1/09 |
1/1/09 - 12/1/09 |
Amount of Credit: |
10% of home cost up to $7,500 |
10% of home cost up to $8,000 |
Eligible Property |
Any single family primary residence |
No change |
Refundable |
Yes. Reduces or eliminates tax liability in the year of purchase. Taxpayer receives any unused credit. |
No change |
Income Limit |
Full credit if adjusted gross income does not exceed $75,000 for individuals or $150,000 for couples. Reduced credits for AGIs up to $95,000 individual or $170,000 for couples. |
No change |
Who is a First Time Homebuyer? |
Purchaser (and spouse) who has not owned a home within the last three years |
No change |
Revenue Bond Financing |
No credit allowed if home financed with state/local revenue bonds |
Credit allowed if home financed with state/local revenue bonds |
Repayment |
Yes, over 15 years with annual payments of 6.67% of credit |
No repayment! |
Recapture |
If home is sold within 15 years, remaining balance to be repaid will be deducted at sale |
If home is sold within 3 years, entire credit will be deducted at sale |
To any first time buyer with good credit and a stable income who questions the value of this credit, I say two words: "Get real." When is the last time someone offered you $8,000 that you didn't have to pay back?
When people move into a new home, some new dynamics come into play. Especially if you embrace homeownership after apartment living, you may find your monthly outlay for utilities much higher than expected - especially if utilities were included in the rent. As a homeowner, you are the one responsible for the hot water heater that suddenly dies or the refrigerator that conks out. The new tax credit doesn't function like an ATM where you can withdraw money when you need it. However, if you reduce your withholding, the anticipated tax credit can help you ease into higher home operating costs and provide for unplanned emergencies.
In addition, $8,000 can fund some of the needs and desires you may have as a new homeowner. The amount won't allow you to remodel a shack into a palace, but it will cover new appliances or new carpeting or some new furniture. If you don't have the cash, you might be able to buy some of these things on a deferred payment plan offered by many stores. Without adding to your Mastercard or Visa bills, you can pay off the balance with your tax credit funds.
The credit is good through December 1, 2009, so now is the time to visit Chicagocityhomes. Karen Breen Elia and Louis Elia will help you locate an affordable first home in Lakeview or one of the many other intriguing Chicago neighborhoods.
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