Final Score = $8,000 for first time buyers
Here are the main points:
1. First time homebuyer: defined as someone who has not owned a principal residence during the 3 year period prior to the purchase of a new or resale home.
2. For the tax credit, the purchase closing (and title transfer and
occupancy) must occur on or after January 1, 2009 and before
December 1,2009.
3. The tax credit is equal to 10% of the home’s purchase price up to a
maximum of $8,000
4. Tax credit is reduced for “modified” adjusted gross income of more than $75,000 for single taxpayers and $150,000 for married taxpayers filing a joint tax return. The tax credit is zero for taxpayers with MAGI above $95,000 (single) and $170,000 (married).
5. This tax credit does not have to be repaid. The previous $7,500 tax credit, enacted in 2008 and which is replaced by this tax credit, had to be repaid and was essentially an interest-free loan. You must use the property as your principal residence for at least 3 years or you will be subject to recapture of the tax credit amount (with some exceptions).
6. You claim the tax credit on your federal income tax return, completing IRS Form 5405 to determine the tax credit amount, and then claim the amount on Line 69 of the 1040 tax return.
7. Any home that will be used as a principal residence will qualify: single family detached, condominiums, townhomes, manufactured homes and houseboats.
8. The tax credit is refundable. Simply, if you qualify for a credit, say $8,000, that is more than what you owe in taxes, say $1,000, when you file your taxes, you will receive a check…in this case for $7,000.
There are some other points to the tax credit that might fit a few buyers particular situation.
Some questions first time buyers have been asking indicate there are some clarifications to be made.
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
your tax liability you get the entire $8,000 tax
credit as a refund check.
Scenario 2: You have over paid taxes through
payroll deductions, you get the tax refund
normally refunded plus the $8,000 tax rebate.
Scenario 3: If your tax liability is more than you
paid in through payroll deductions, you subtract the
amount due in taxes from the $8,000 credit and
you get the remainder as a refund.
For questions or more details contact your tax adviser.
Combine the low interest rates with the tax credit, and, as we have been saying: It’s a great time to buy. Contact Wayne today.
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