by Dell Claiborne
Can you help me understand the new tax credit for first time homebuyers like myself?
The homebuyer tax credit is a major part of the new economic stimulus package recently passed by Congress. The tax credit is aimed at first time homebuyers with the hopes of putting more people in a position to realize the dream of homeownership. First you must understand that to qualify for the credit, “first time homebuyer” is defined as having not owned a principal residence in the previous three years. If you’re married, your spouse must not have owned a home within the previous three years either. The benefit applies to a principal residence that is purchased between January 1, 2009 and December 1, 2009. The total amount of the tax credit is an area that seems to be confusing people. The applicable credit is 10 percent of the cost of the home or up to $8000, whichever is less. So unless you purchase a home less than $80,000 you should receive the full credit. You must also be aware that there are income limits that apply to eligibility. Individual purchasers can have an adjusted gross income of no more than $75,000 and married couples filing jointly can’t make more than $150,000.
When this tax credit was passed in an earlier version in 2008, there was an issue of the credit having to be repaid over the course of 15 years, with payments beginning in 2010. What has changed is that there is no longer a repayment clause. However, if the home is sold within three years then the tax credit amount will be recaptured, in full.
Now, how does the credit affect your tax return? Here’s a quick example: Suppose you decide not to buy your first home this year. You file your taxes in 2010 and find out that you owe $1000 in federal income tax for tax year 2009. Now suppose you do buy a new home for $200,000. Before applying First Time Homebuyers tax credit, you still owe $1000 in Federal taxes. Once an $8000 credit is applied, you will end up receiving a refund of $7000. That’s a pretty good deal and yet another reason why now really is the best time for first time buyers to take advantage of the housing market. Also, I’d like to add that you should contact a tax professional for advice beyond these basics.
I’d like to take a little time to say that the First-Time Homebuyer Tax Credit is just one part of the recently passed Economic Stimulus package regarding Real Estate and Housing. The bill also includes provisions for Neighborhood Stabilization. There is $2,000,000,000 (two billion dollars) in funding to helps states deal with neighborhoods that have been destroyed by foreclosures. This will help localities to manage, repair and possibly resell foreclosed and abandoned properties. There is also funding to promote energy efficiency in homes. In my opinion, what stands out is the $5 billion for weatherization assistance for low income households.
There are a number of different programs that are a part of the stimulus package. For more information visit www.recovery.gov
Dell Claiborne is Associate Broker with LET Properties, LLC. A native of the Richmond area, he says his interest in Real Estate began the first time he and his sister played Monopoly. He specializes in assisting first time homebuyers and training new agents. Dell lives in Richmond’s North Side with his wife Robin and daughter Lillian.