2009 Federal Housing Tax Credit for Home Buyers

There are some perks for home buyers in the new Federal Stimulus package signed by President Obama a few days ago. Details are still a bit sketchy however in broad outline here are some basics that may help you in your home purchase planning.

What is it? A Federal income tax credit applicable directly against your tax liability not subject to future payback, unless home is sold within 3 years. (This “no-payback” provision is different from last year’s tax credit which must be paid back over 15 years starting two years after purchase.)

How much is it? 10% of the home purchase price up to an $8,000 credit.

Who qualifies for it? First-time home buyers buying a principal residence. (Buyers who have not owned a home for 3 years qualify as first-time homebuyers.) Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

When is qualifying period? Home purchases made from January 1, 2009 to December 1, 2009 qualify for this benefit.

This information has been gathered from a variety of sources and I believe it to be accurate. However, in the fullness of time there will be other variables and interpretive nuances coming to light. Be smart. Use this information for planning purposes but before committing actual financial resources consult a competent tax professional for details about how this program will impact your tax liability.

More information may be found here and here.

Revised (improved) $7,500 tax credit for home buyers progressing through Congress

The U.S. House of Representatives has now (January 28, 2009) passed the Economic Stimulus Bill which includes the provision removing the “pay back” aspect of the $7,500 tax credit for first time home buyers according to this CNN report (http://tinyurl.com/c6wn7k). The Senate is expected to pass its own version of the bill in the next week or so. 

This dramatically strengthens the incentive for qualifying buyers (first-time home buyers or those who haven’t owned a home in 3 years) considering the purchase of a principal residence in the near future. The removal of the pay-back provision (contained in both versions) apparently contains the caveat that you must not sell the home within 36 months. 

At the moment a purchase between April 9, 2008 and June 30, 2009 (dates established by the 2008 Housing Recovery Act passed last summer) would seem to safely qualify for the credit. The qualifying dates during which the purchase must be made seem to keep changing. (The Senate version of the bill extends the eligibility through the end of August 2009.) So be sure to check with your tax professional for exact details. The credit may be applied to your 2008 taxes if you purchased in 2008. 

There has been some talk of expanding the credit to other than first-time buyers but to date nothing solid has been proposed. Stay tuned. This is a very fluid situation. I’ll do my best to keep you updated.

$7500 Home Buyer Tax Credit Repayment Requirement Ending?

With the change in the Federal administration has come hope that the $7,500 first-time home buyer tax credit—discussed in my last two posts—may have its 15-year repayment requirement removed.

 Kenneth Harney wrote in yesterday’s Sunday Columbus Dispatch that Congress is seriously considering the move.

 That would substantially increase the attractiveness of the tax credit and will likely boost home buyer interest in the next few months.

 Should you give the $7,500 home-buyer tax credit a second look?

Now that Congress might be on the verge of transforming it into a true tax credit — one that never has to be paid back — you just might want to do so.

 On Jan. 15, the House Democratic leadership outlined its $825 billion economic stimulus package, loaded with $275 billion in tax cuts and $550 billion in new spending on health care, education, alternative energy and infrastructure improvements.

 Tucked away in the tax section was a significant improvement to July’s congressional effort to stimulate home sales.

 That program offered a credit of up to $7,500 to purchasers who had never bought a house or hadn’t owned one during the previous three years.

 To qualify, taxpayers would need to close on a house between April 8, 2008, and July 1, 2009.

 But relatively few consumers were attracted to the plan because, unlike virtually all other federal tax credits, this one had to be repaid in full during a 15-year period.

 In effect, the $7,500 was more like an interest-free installment loan from the government than a straightforward dollar-for-dollar reduction on buyers’ tax bills.

 You can find the complete article here: http://tinyurl.com/harney

New home buyer $7,500 tax credit–REVISITED

A clarification.

I recently wrote about the new federal income tax credit for home buyers.

My statement in that post that singles would receive $3,750 instead of the $7,500 was unintentionally misleading.

Singles buying a home and qualifying in every other way will receive the full $7,500 credit.

Unmarried couples (or married couples who file their taxes separately) who qualify for the full credit will receive a total tax credit of $7,500. Please consult your tax professional for more details about how that credit may be distributed.

More Information from NAR and IRS

The National Association of Realtors (NAR) has posted a website with more information. Find answers to FAQs here. (Short attention span summary.)

Since my original post, the IRS has published detailed answers to FAQs here.

NEW federal tax credit for home buyers

Last week, Congress passed a new comprehensive housing bill. Among its components is a significant tax credit available to new home buyers. Kenneth Harney’s “The Nation’s Housing” column in The Columbus Sunday Dispatch, August 3, 2008, does a good job of describing the basics of this benefit for new home buyers.

Michelle Singletary’s July 31, 2008 “The Color of Money” column at WashingtonPost.com (requires free registration to access) provides additional analysis. 

“A tax credit is much more valuable than a deduction. A credit reduces dollar for dollar the amount of tax you owe. A deduction merely reduces the amount of your income that is taxable.” – Michelle Singletary

 For those with a short attention span, here are some important elements.

 Eligibility

• Must purchase between April 9, 2008 and June 30, 2009.
• Must be new home owner (first home purchase or haven’t owned a home in the past three years).

 Benefit

• Up to $7,500 tax credit ($3,750 for singles each for married couples filing separately) that can be applied against 2008 or 2009 federal income tax (technically, 10% of purchase price with a maximum credit of $7,500).
• Reduced benefit for those with adjusted gross income greater than $150K ($75K for singles).
• If your tax liability is less than the credit, the remaining credit will become a tax refund to you.

 Strings

• Home must be your principal residence.
• The credit must be repaid starting the second tax year after purchase.
• Up to 15 years to repay-no interest charged (a full $7,500 credit would require a $500 a year repayment-about $41.67 per month).
• If you resell before fully paying off the credit, you won’t have to pay more than any net gain you make from the sale.

 More Information

• The National Association for Homebuilders is hosting an informative and consumer-friendly Web site with even more details.

Pols Extend Mortgage Insurance Tax Deductibility Beyond 2007

Our good friend and a frequent client choice for home loans, Andy Deutschle of Strategic Mortgage, brought the passage (December 19, 2007) of this legislation to our attention. It extends the tax deduction for mortgage insurance beyond the end of 2007 when it was scheduled to expire.

This is how he tells it…

 At a time when homeowners need relief most, Congress has taken another big step to help by extending legislation that makes mortgage insurance payments tax deductible for many homeowners. The tax legislation, originally approved in December 2006, pertained only to loans closed in the 2007 calendar year. With this renewal, there are three important points to note:

1. The tax deductibility extension is for three more years (through 2010). After that, it will have to be renewed again for existing homeowners to continue to deduct premiums and for new borrowers to take the deduction.
2. The specifics of the legislation will remain the same. Borrowers whose annual adjusted gross income is $100,000 or less can deduct their MI premiums from their 2007-2010 federal income tax returns for homes purchased or refinanced during this timeframe. Those with incomes between $100,000 to $109,000 are eligible for a reduced tax break under the law.
3. Deducting the cost of MI on federal tax returns is estimated to save borrowers $200-$400 each year. 

 

Thanks, Andy! And Merry Christmas to you all!