Sunday, May 31, 2009

What's Up with the $8,000 Tax Credit?

In order to understand the details of the housing stimulus bill or $8000 home buyer tax credit (also called as $8000 housing tax credit) as a first time home buyer you need to understand the following points:What does first time home buyer exactly mean? -The law defines "First time home buyer" as a home buyer who has not owned a principal residence for the last three years. For married tax payers, both you and your spouse must be 'first time home buyers' in order to qualify for the housing tax credit. For unmarried joint purchases, either of the qualifying partner may be a 'first time homebuyer'. In this case the $8000 housing tax credit can be allocated to any of the partners. Note the if you have bought a home 3 years ago and have rented it since then, then it does not count as principal residence and you may still be eligible for the $8000 first time home buyer stimulus. Neither rental properties or vacation homes count as principal residence. However, if the new home you are purchasing is a mobile home or condo, and it is going to be your principal residence, you still qualify for the home buyer tax credit. Even building a home on a land (as opposed to purchasing a ready-made house) qualifies for the $8000 housing tax credit. In order to qualify for the home buyer tax credit, the first time home buyer must purchase the house between January 1 2009 and December 1 2009, both dates inclusive.
How much tax credit will homebuyers get? - Although this tax credit is referred to as $8000 housing tax credit, remember that the total amount of tax credit a home buyer gets is up to 10% of the purchase price of the new house up to maximum of $8000. Thus in order to get a full tax credit of $8000 your purchased property must be above $80,000 in value.
1. Income Limits for $8000 home buyer tax credit: First time home buyers with modified gross annual income of $75,000 get full benefit of this housing tax credit. The tax credit is gradually reduced for those with income between $75,000 to $95,000 and finally a home buyer gets no tax credit if his/her modified gross annual income is more than $95,000. For married taxpayers, the home buyer tax credit is gradually reduced to zero for modified gross annual income between $150,000 to $170,000.
2. This is a Refundable Tax Credit - Remember that this is a tax credit and not a tax deduction. That is qualified first time home buyers deduct $8000 from their total tax owed to the IRS and NOT the total taxable income. Moreover a refundable tax credit means that in case the total taxes you owe to the IRS are less than $8000, you can actually get a refund for the balance amount!
This $8000 home buyer tax credit, unlike $7500 tax credit does not need to be repaid to the IRS - the earlier $7500 housing tax credit was essentially an interest free loan which the home buyers needed to repay in 15 years. However, although this $8000 home buyer tax credit may look only $500 more than the previous housing tax credit, it is all yours!

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