New Home Tax Credit Info
Homebuyer Credit Not Just for First-Timer
source: http://www.usaa.com
In its rush to shore up the American economy, Congress saddled an important part of the federal stimulus package with a misleading name. As it turns out, the First-Time Homebuyer Credit isn't just for first-timers — it's available to anyone who hasn't owned a home in the three years leading up to their purchase.
Uncle Sam's generous definition of first time means many former homeowners can qualify for the credit, which applies to purchases made between Jan. 1, 2009 and Nov. 30, 2009.
For example, a family that once owned a home but has rented a house or apartment for the past three years would qualify. Likewise, couples who have lived in military housing for the past three years would qualify, even if they previously owned a home.
The Dollars Are in the Details
The First-Time Homebuyer Credit equals 10% of the purchase price of a home, up to a maximum of $8,000, and is claimed on your annual tax return using IRS Form 5405. Because tax credits represent a dollar-for-dollar reduction of your tax liability, they're much more valuable than tax deductions.
For example, if your new home is worth $80,000 or more, you are able to reduce your taxes by $8,000, a significant savings.
Better yet, this one is refundable, which means you can actually receive money back from the government if the credit exceeds your tax bill for the year.
The credit starts to shrink once your income reaches $75,000 for singles and $150,000 for married couples, and vanishes altogether when your income hits $95,000 for singles and $170,000 for married couples. Unlike a similar credit available last year, this one doesn't have to be repaid unless you sell the home within 36 months of purchase.
For married couples to claim the credit, neither spouse may have owned a home within the last three years.
And if you're building a new home, keep in mind you have to actually move into it by November 30th to qualify for the credit.
A Better Time to Buy?
As he surveys the American housing market, USAA CERTIFIED FINANCIAL PLANNERTM practitioner J.J. Montanaro points to several conditions that make this a much more attractive time to buy a home than just a few years ago.
- Lower prices. "Now that the real estate bubble has burst, buyers in many markets have a chance to nab homes at deep discounts to their former prices," says Montanaro.
- Lower mortgage rates. With 30-year fixed mortgage rates hovering around 5%, mortgage payments have grown much more affordable. Montanaro counsels members to keep their total housing cost below 28% of their gross monthly income. This would include mortgage payment, taxes and mortgage insurance.
- Tax breaks. "In addition to the First-Time Homebuyer Credit, homeowners can also take advantage of credits for installing energy-saving enhancements," says Montanaro. This 30% credit — for improvements like new windows, furnaces and air conditioning systems — has a maximum $1,500 value.
To learn more about the First-Time Homebuyer Credit visit the IRS website.
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