Here is my first cut at the Tax Credit the new bill contains. Please consult your tax advisor (or congressman….lol) for additional details.
There is a new $8,000 first-time home buyer tax credit.
It does not replace the $7,500 tax credit issued last year (that one must be paid back). If you purchased your home between 4-8-2008 and 12-31-2008 you do not qualify for the new tax credit.
- The $8,000 tax credit is available for “qualifying” home purchases from 1-1-09 until 12-1-09 (that is correct, December 1st)
- The tax credit will reduce the tax you owe dollar for dollar. This is great! A tax credit reduces the taxes you owe, a tax deduction reduces your taxable income, trust us, you come out way ahead with a tax credit.
- If you sell your home within 36 months, or if it is no longer your principal residence within 36 months of the purchase date, you will have to pay the full $8,000 back. If you sell the home and your gain is less than the credit, you will only have to repay up to the amount of the gain. If you think you might sell before the 36 months, I would clarify if we’re talking capital gain here. Remember, capital gain is your adjusted sales price minus your adjusted cost basis.
- Married filing separately, you only get $4,000 of the credit. Single tax filer gets the full $8,000.
- You must be a “first time” homebuyer under the 2008 definition.
Definition: Either you have never owned a home before, or you haven’t owned or co-owned one during the 3 years preceding the date you close on your 2009 purchase. Careful planning is key here.
- The eligibility for the tax credit is phased out starting at $75,000 adjusted gross income for a single taxpayer and $150,000 for married taxpayers filing jointly. Remember this is “Adjusted Gross Income”.
- You can use state and local tax exempt mortgage revenue bond programs to finance your home and still be eligible. The 2008 version prohibited this.
- This must be a principal residence, not a second home or investment property.
This is a powerful incentive to buy a first home, or purchase one if you haven’t owned in 3 years. With low home prices and low interest rates, this credit is a boon to many buyers who will take advantage of this.
If there was ever a time in the last 3 years to purchase a home, that time is now.
(This commentary provided by S. Scott Avery, President, Avery-Hess, Realtors)
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