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First Time Homebuyer Tax Credit for '08 and '09

By: The New Homes Guide
There's never been a better time to buy your first home. That's a fact. Why Well, it's a Buyer's Market out there, for one thing. Plus, there's a big selection of new homes going for very affordable prices that were unheard of just a short while back. And now, the U.S. Government is even getting into the act, by encouraging you to buy now. How
It's called the First-Time Homebuyer Tax Credit. It's part of the Housing and Economic Recovery Act passed by Congress on July 26, 2008. It allows first-time
homebuyers to take as much as a $7,500 tax credit from the purchase of a single-family home, town-home, or condominium apartment. The home must be used as the principal residence in order to qualify for the tax credit.
What's the catch There's a deadline-and it'll be here before you know it. So you have to get going and get moving To qualify for it, you must actually close on the sale of the home on or after April 9, 2008-and before July 1, 2009.
Do you qualify as a first-time homebuyer Are you eligible to take advantage of the tax credit If you have not owned a home during the past three years, and you're a U.S. citizen who files taxes, you're eligible. (By the way, some homebuyers who are not citizens may also qualify. See #9 in this article.) For married taxpayers, the law takes both of the homeownership histories of the spouses into consideration. For instance, if you have not owned a home in the past three years-but your spouse has-neither you nor your spouse qualify for the tax credit.
By the way, if you finance the purchase of your home with the Mortgage Revenue Bond (MRB) homebuyer program, you cannot combine it with the tax credit.
Are there income limits that might impact your eligibility Yes. If you file your taxes as a Single or Head-Of-Household, you can claim the full $7,500 credit-if your Adjusted Gross Income (AGI) is less than $75,000. For married couples filing a joint return, the income limit is doubled-to $150,000.
Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time homebuyer tax credit. The same is true for married couples who earn between $150,000 and $170,000.
In general, the credit is equal to $7,500 for a qualified home purchase, whether the homebuyer files taxes as single or married taxpayer. Keep in mind that if you file your taxes as married filing separately (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.
The credit is not available for single taxpayers whose AGI is greater than $95,000 or for married couples with an AGI exceeding $170,000.
Some other things you need to know:
1. This is a refundable tax credit. That means if you pay less than $7,500 in federal income taxes, the government will write you a check for the difference. For example, if you owe $5,000 in federal taxes, you won't pay anything and you'd receive a $2,500 payment from the IRS. And here's another example: if you are a qualifying homebuyer who is owed a $1,000 tax refund, you'll receive $8,500.

2. As a homebuyer, you can take the tax credit on your 2008 or your 2009 tax return. If you close on your home in 2008, you can take the credit on your 2008 tax return. If you close in 2009, however, you have the option of taking the credit in 2008 or 2009.

3. The tax credit program also has a payback provision. That's because it's more than just a tax credit. It also is an interest-free loan (sometimes called a zero-interest loan) that is repaid over 15 years. Let's say that you, as a homebuyer, are claiming a $7,500 credit; that means you would repay the credit at $500 per year. If you sold the home, then the remaining credit would be due from the profit of the home sale. If, however, it turns out that there's insufficient profit from the sale of the home, then the remaining credit payback would be forgiven. By the way, to show you what a good deal this tax creditzero-interest loan is, here's an example: Assuming an interest rate of 7%, the homeowner saves up to $4,200 in interest payments over the 15-year repayment period. Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the tax credit saves a homebuyer more than $8,100 in interest payments. So why does the Federal government call this a tax credit and not a zero interest loan It's because the program is administered through the IRS, so it is part of the tax code. And because, like a tax credit, it provides a reduction in tax liability in the year it is claimed.

4. Your MAGI (Modified Adjusted Gross Income) also comes into play with this tax credit. To determine your MAGI, you must first figure out what your AGI (Adjusted Gross Income) is: start with your total income for a year, minus certain deductions (known as adjustments or above-the-line deductions), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, you'll find that AGI is the last number on page 1 and the first number on page 2 of the form. For Form 1040-EZ (as of 2007), the AGI appears on line 4. Keep in mind that the AGI includes all forms of income-including wages, salaries, interest income, dividends, and capital gains. Other things you need to use to determine your MAGI are certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions, and deductions for higher-education costs.
5. If your MAGI is above the limit, will you still qualify for the tax credit Maybe. It all depends on your income. Partial credits of less than $7,500 are sometimes available if your MAGI exceeds the phase-out limits. The credit becomes totally unavailable for individual taxpayers with a MAGI of more than $95,000-and for married taxpayers filing joint returns with an AGI or more than $170,000. If this is all as clear as mud to you () just ask your tax advisor to help you with your own particular set of circumstances.

6. Are there any circumstances where you might not be able to claim the full $7,500 tax credit Yes. That's because, in general, the tax credit is equal to 10% of the qualified home purchase price-but the credit amount is limited (capped) at $7,500. Which means that, for most first-time homebuyers, the credit is likely to equal $7,500. However, for homebuyers purchasing a home that is priced less than $75,000, the credit will equal 10% of the purchase price.

7. The tax credit is refundable. This means that you, as the homebuyer, can claim the tax credit, even if you have little or no federal income tax liability to offset. So the government will send you a check for a portion-or even all-of the amount of the refundable tax credit.

8. Is there a difference between the tax credit and a tax deduction Yes. Here's the definition of a tax credit: a dollar-for-dollar reduction in what the taxpayer owes. As an example, a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS. Here's the definition of a tax deduction: This is an amount of money that is subtracted from the amount of income that is taxed. As an example, assume the taxpayer is in the 15% tax bracket and owes $7,500 in income taxes. If the taxpayer receives a $7,500 deduction, the taxpayer's tax liability would be reduced by $1,125 (which is 15% of $7,500), or lowered from $7,500 to $6,375.

9. Can a homebuyer who's not a U.S. Citizen claim the tax credit Maybe. Anyone who is not a non-resident alien (as defined by the IRS), and who has not owned a principal residence in the previous three years-and who meets the income limits test-may claim the tax credit for a qualified home purchase.

10. Why did the U.S. Government create this tax credit in the first place The intent of Congress was to provide as large a financial resource as possible for homebuyers in they year they purchase a home. In addition to helping first-time homebuyers, this tax credit program will help stimulate the housing market and the economy. It will also help stabilize home prices and increase home sales. The reason that there's a repayment requirement This reduces the impact on the U.S. Treasury, and it also allows homebuyers to benefit from stabilized-and eventually rising-future housing prices.

11. To learn more about the First-Time Homebuyer Tax Credit, go to www.federalhousingtaxcredit.com We think you'll find the list of Frequently Asked Questions About The First-Time Home Buyer Tax Credit very helpful and informative. And we hope it'll give you yet one more excellent reason to buy your own home-and get your share of the American Dream-while the getting's extra-good.

McAllen Real Estate & New Homes Guide
Tags : First ,Homebuyer ,Tax ,Credit ,credit ,income ,homebuyer ,taxes ,married ,deductions ,purchase ,homebuyers ,qualify
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Article Number : 1989
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