Tax Credit

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Tax Credit for Home Buyers
First-time home buyers who purchase homes from the start of the year until the end of December 1st 2009 may be eligible for a home tax credit of $8,000 or 10% of the value of the home purchased, which ever is lower. Remember a tax credit is very different than a tax deduction – a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income.

The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their home within three years.

Tax Credit Versus Tax Deduction
It’s important to remember that the $8,000 tax credit is just that…a tax credit. The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a home buyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing. Better still, the tax credit is refundable, which means the home buyer can receive a check for the credit if he or she has little income tax liability. For example, if a home buyer is liable for $4,000 in income tax, he can offset that $4,000 with half of the tax credit…and still receive a check for the remaining $4,000! Remember, these are general examples. You should always consult your tax advisor for information relating to your specific circumstances.

Homes that Qualify
The tax credit is applicable to any home that will be used as a principal residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principal residence also qualify.

This information was provided to me by Bill Evans at Mortgage Family