Saturday, February 28, 2009

Home Tax Credit Explanations

American Recovery and Reinvestment Act is a tax credit of up to $8,000 in 2009.

The new credit is designed to boost sales in the nation's sagging housing market. Lawrence Yun, chief economist for the National Association of Realtors, predicts homebuyers will purchase an additional 300,000 homes in 2009 as a result of the tax credit.

The new credit improves on a first-time homebuyer credit passed in 2008. That credit had to be paid back over a period of 15 years, making it more of a loan than a true credit. This year's tax credit will certainly have a bigger impact because it is a true tax credit which is also refundable. For instance, if you owe $1,000 in taxes and qualify for the first-time homebuyers tax credit, (not owning a home for the past 3 years), you will receive a tax refund of $7,000.

Rules for 2009 first-time homebuyers tax credit
*Does not have to be repaid unless the home is sold within three years.
*Applies only to first-time homebuyers, defined as those who have not owned a home within the previous three tax years.
*Available only for homes purchased between Jan. 1, 2009, and Dec. 1, 2009.
*Restricted by income; phases out for individuals with an adjusted gross income of $75,000 or above and for married couples with a combined adjusted gross income of $150,000 or above.
*Tax credit is for up to 10 percent of the purchase price, up to a maximum of $8,000. For example, a buyer of a $150,000 home could receive a tax credit of a maximum of $8,000, while a first-time buyer of a $70,000 home would be eligible for a tax credit of $7,000.
*The credit can be taken on 2008 taxes even when the purchase is made in 2009.
*The greatest part of this tax credit is that homebuyers can take the credit on their 2008 tax return even when they have purchased the home in 2009. This acts as an immediate stimulus for a lot of people.

Homebuyers can take advantage of this tax filing in one of three ways...

1. Closing on the home prior to December 1, 2009,

2. Getting an extension to file taxes later in the year

3. Or filing an amended return.

*Some state housing programs are introducing programs that allow homebuyers to access the tax credit money at settlement.

This information was provided by Lawrence Yun, chief economist for the National Association of Realtors

Click on link below to view Form 5405 to attach to your 1040 Returns:

f5405.pdf

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