Here is some exciting news for first-time home buyers. The American Recovery and Reinvestment Act of 2009 provides a tax credit of up to $8,000 for first-time buyers. A first-time buyer is anyone that has not owned a home in the past 3 years. The credit is $8,000 or 10% of the home's value, whichever is less. The credit can be claimed on 2008 or 2009 taxes.
A big plus is that the credit is refundable, meaning tax filers see a refund of the full $8,000 even if their total tax bill - the amount of withholding they paid during the year plus anything extra they had to pay when they filed their returns - was less than that amount.
To clarify here are three scenarios:
Scenario 1: Your final tax liability is normally $6,000. You've had taxes withheld from every paycheck and at the end of the year you've paid Uncle Sam $6,000. Since you've already paid him all you owe, you get the entire $8,000 tax credit as a refund check.
Scenario 2: Your final tax liability is $6,000, but you've overpaid by $1,000 through your payroll withholding. Normally you would get a $1,000 refund check. In this scenario you get $9,000. The $8,000 credit plus the $1,000 you overpaid.
Scenario 3: Your final tax liability is $6,000, but you've underpaid through your payroll withholding by $1,000. Normally, you would have to write the IRS a $1,000 check. This time the first $1,000 of the tax credit pays your bill and you get the remaining $7,000 as a refund.
To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Dec. 1, 2009. Buyers may not have owned a home for the past three years to qualify as "first time" buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit. Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)
It’s easy to apply for the credit - or at least as easy as doing your income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.
To further help first time home buyers the Idaho Housing and Finance Association (IHFA), through its IdaMortgage lending program, is offering a special short-term Tax Credit 2nd Loan to qualified buyers. This will enable home buyers to use the tax credit as their down payment. A Tax Credit 2nd Loan (think of it as an advance loan) will be offered to qualified first-time homebuyers in the amount not to exceed 5% of the sales price or $7,000. A small fee will be charged and the loan will accrue interest at 3% with a due date of July 1, 2010. The Tax Credit 2nd Loan is expected to be paid off from the borrower’s tax refund obtained through the application of the federal tax credit. The borrower must be a first-time homebuyer and qualify for an IdaMortgage loan.
Every person's tax situation is different so you should ask your tax advisor exactly how the mortgage interest deduction will apply to you.
The first-time home buyer tax credit expires on December 1st, 2009. That’s less than 8 months from now. If you are interested in exploring your options feel free to give me a call at 208-890-2200. My name is Trish Trader and I am a real estate agent with Atova and IdahoRealEstate.com. Additional details on this program are also available here: http://www.federalhousingtaxcredit.com
Trish Trader
208-890-2200