Plummeting home prices, low interest rates, foreclosure properties galore—if you’ve been sitting on the sidelines waiting for the opportune time to buy a house in this otherwise scary economy, the current tax season may be the perfect time (that is, assuming you still have a job). The federal government’s newly signed stimulus package has expanded the first-time home buyer tax credit in 2009 to $8,000 (up from $7,500 in 2008), or $4,000 for married individuals filing separately.
“$8,000 represents roughly 3 percent off the purchase price of the average $240,000 home,” says real estate agent Amy Bender Webb of Nest Realty Group and real estate blogger at ahomeincharlottesville.com. “That’s a significant price decrease.” Here’s an overview of what the new tax credit is and isn’t, and whether you qualify for it.
What it is
Fundamentally, the newly expanded tax credit is an attempt by the federal government to spur the economy by nudging people into homes which previously couldn’t find buyers (in case you haven’t noticed, there’s a lot of houses like that these days). The sellers of those homes are in turn freed up to become buyers; on and on it goes until the housing market is in full steam again.
The new credit is just that—an actual credit that can be claimed on a buyer’s 2008 or 2009 federal tax return. In order to qualify, a home needs to be purchased between January 1 and December 1, 2009 and must be lived in for at least three years. Regardless of when you buy a home in ’09, you can still claim the credit on your 2008 tax return due April 15; for homes that close after that date, simply request an extension or file an amended return. Or wait until next year to claim it—if you think you might have less income in 2009 than in 2008 (thanks to the crappy economy), it might make more financial sense to wait until then.
What it isn’t
It’s not a loan, unlike the $7,500 tax credit of 2008—aimed at first time buyers who purchased a home between April 9, 2008 and December 31, 2008—which had to be paid back in full in 15 years, starting two years after the credit was claimed.
Neither is the credit a big fat check you get in the mail. It simply lowers your tax bill dollar for dollar. If the credit is worth more than your total tax liability, you receive a tax refund.
Lastly, it’s not applicable toward second homes or rental properties.
Technically, the credit is aimed at “first time” home buyers, but anyone who hasn’t owned a home in three years can take advantage of it. It’s also aimed primarily at middle-income earners. The credit begins to phase out for individuals making more than $75,000, or $150,000 for joint filers. And people earning more than $95,000, or married couples earning $170,000, are not eligible.
How to file
The credit is claimed using Form 5404. Go to irs.gov for more information.