How could this effect my mortgage payment?
• Assuming you are eligible for the full $8,000 refund it would be like reducing your monthly payment by $667 dollars a month!
• Example: You purchase a home for $200,000 and use the FHA program to finance a $193,000 mortgage at 5% with a payment of principle and interest $1,036/month.
• In theory if you took the full $8,000 refund and put it towards your monthly mortgage payment it would be like paying $370 a month for the first year!
Who is Eligible?
• First-time home buyers purchasing any kind of home – new or resale – are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or after January 1, 2009 and before December 1, 2009.
• For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.
How do you define a first time home buyer?
• The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the l aw tests the homeownership history of both the home buyer and his/her spouse.
How is this different from the 2008 tax credit?
• The most significant difference is that this tax credit does not have to be repaid. Because it had to be repaid, the previous “credit” was essentially an interest-free loan. This tax incentive is a true tax credit. However, home buyers must use the residence as a principal residence for at least three years or face recapture of the tax credit amount. Certain exceptions apply.
Is a tax credit the same as a tax deduction?
• No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $8,000 in income taxes and who receives an $8,000 tax credit would owe nothing to the IRS.
• A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $8,000 in income taxes. If the taxpayer receives an $8,000 deduction, the taxpayer’s tax liability would be reduced by $1,200 (15 percent of $8,000), or lowered from $8,000 to $6,800.
How much will I get back?
• The fact that the credit is refundable means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even the entire amount of the refundable tax credit.
• For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $8,000 home buyer tax credit. As a result, the taxpayer would receive a check for $7,000 ($8,000 minus the $1,000 owed).
Are there income limitations?
• The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint return. The tax credit amount is reduced to zero for taxpayers with MAGI of more than $95,000 (single) or $170,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
Does new construction qualify?
• Yes. For the purposes of the home buyer tax credit, a principal residence that is constructed by the home owner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date20of first occupancy must be on or after January 1, 2009 and before December 1, 2009.
Why should I buy now?
• Mortgage rates are at historic lows.
• Housing prices have come down over the past 2 years and it is a buyers market.
• The government has never implemented a program like this – it is like giving you a check for up to $8000!