Wednesday, February 18, 2009

FIRST-TIME BUYERS TAX CREDIT, Part 1

On Tuesday, February 18, 2009, President Obama signed the economic stimulus bill and one of the provisions included a tax credit for first-time buyers. The credit claimed is worth up to $8,000 or 10% of a home’s value, whichever is less, and can be claimed on 2008 or 2009 taxes.

This is a refundable tax credit – which means that most new buyers will pocket extra cash after filing their taxes; the amount depends on various filing and withholding factors.

Examples of how this works:

A) You owe $5,000 (your tax liability). Each paycheck has withholding for taxes and by year end you’ve paid $5,000 to the US Treasury. Since you’re “paid up”, you’d receive the full tax credit as a refund check.

B) You owe $5,000 (tax liability). Through your payroll withholding you’ve overpaid by $500, which results in a $500 refund check. You’d now qualify for the $500 overpayment PLUS the $8,000 tax credit.

C) You owe $5,000 (tax liability). Unfortunately payroll withholding was underfunded by $500, and you’d usually write a check to the US Treasury for $500. But this time, the tax credit pays that $500 owed and you get a refund of $7,500.

Certain qualifications must be met to receive this tax credit, such as purchasing a home between Jan. 1, 2009 and Nov. 30, 2009. “First-time” buyers are purchasers who have not had ownership in a property for the past three years. To avoid repayment of the credit, buyers must remain in the home for at lest three years.

Income restrictions include: Singles must make less than $75,000 and couples no more than $150,000. (partial credit may be given to higher income buyers)

The credit application will be relatively easy – or as easy as doing your taxes. No additional forms needed, just claim it on the return! And, a taxpayer who has already submitted a completed return can claim the credit by filing an amended return.

I'll share some industry thoughts about the tax credit and stimulus plan in my next blog. As always, please call me at 913-642-3334 or email me at michele@wantinsight.com with any questions or comments.

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