Homeowners can find cash with the homeowners tax credit

Benefits of the tax credit

Homebuyers can find cash today with the $ 8,000 first-time homebuyer tax credit. The credit is the showpiece of the 2009 American Recovery and Reinvestment Act. It was designed by the government to boost housing sales and help spur the market to recovery. Projections are that the plan was successful. Chief economist for the National Association of Realtors Lawrence Yun said, “According to our projections, homebuyers will purchase an additional 300,000 homes in the coming year as a result of the tax credit.”

Overall, the tax credit was a help to the nation’s recovery efforts. Yun said, “We think this year’s tax credit will certainly have a much bigger impact because it is a true tax credit which is also refundable. For instance, if you owe $ 1,000 in taxes and qualify for the first time homebuyers credit, you receive a tax refund of $ 7,000.” Yun believes the credit will continue to bring down housing inventories and stabilize housing costs.

Tax credit for first time homebuyers

There are rules along with the first-time homebuyer tax credit. Here are the main ones:

• It does not have to be repaid unless the home is sold within three years
• It is available to homes purchased between January 1st and December 1st of 2009.
• Restricted to individuals with AGI of $ 75,000 or more and couples with AIG of $ 150,000 or more
• The tax credit is for up to 10% of the purchase price, to a maximum of $ 8,000
• The credit can be taken in 2008
• It applies to first-time homebuyers, or those who have not owned a home in three tax years

The filing exceptions to the tax credit are:

• Those who closed on a home prior to April 15, 2009
• Those who got an extension to file taxes
• Those who filed an amended return

Critics and complainers

Though many financial experts are in support of the tax credit, there is still a portion of analysts who don’t believe it is the easiest way to find cash today. A Certified Financial Planner for the Wise Investor Group, Greg Smith, opines the tax credit is an incentive to buy, but buyers need to be realistic about the benefits of the tax credit. He said, “This incentive only works for people who have complete job security, who know they won’t be transferred within three years, who qualify as first-time homebuyers and have the ability to obtain financing. They must also live in an area with reasonable housing prices.”

Michael Dooley, another financial planner in Beverly, Massachusetts, agrees. He said, “While the theory behind the tax credit is great, I just don’t think $ 8,000 is enough. The people who would benefit from this the most are looking to survive financially or are even leaving their homes because they can’t afford them.” The tax credit was meant to cover 10% of the home’s purchase price, but surveys show that in reality it’s only covering about 4%.

Performance thus far

Although there are detractors to the tax credit who don’t believe it is the answer to finding cash today as easily as it was supposed to, it still is allowing buyers to purchase homes. The real job of the tax credit was to benefit first-time homebuyers and spur them into action. The tax credit has done that and can’t be deemed a failure yet.

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First Time Homebuyer Tax Credit

First-time homebuyers may be able to take advantage of a tax credit for homes purchased in 2008 or 2009. The credit:

1. Applies to purchases that close after April 8, 2008, and before Dec. 1, 2009.

2. Applies only to homes used as a taxpayer’s principal residence.

3. Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.

4. Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

The credit is claimed using Form 5405.

For 2008 Home Purchases

The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.

For 2009 Home Purchases

1. The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1.

2. For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.

3. First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return. News release 2009-27 has more information on these options.

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First Time Homebuyer Tax Credit

First-time homebuyers may be able to take advantage of a tax credit for homes purchased in 2008 or 2009. The credit:

Applies to purchases that close after April 8, 2008, and before Dec. 1, 2009.

Applies only to homes used as a taxpayer’s principal residence.

Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.

Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

The credit is claimed using Form 5405.

For 2008 Home Purchases

The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.

For 2009 Home Purchases

The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1.

For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.

First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. But, if the closing occurs after April 15, 2009, a taxpayer can still claim it on a 2008 tax return by requesting an extension of time to file or by filing an amended return. News release 2009-27 has more information on these options.

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