President Obama is expected to sign a bill today that will encourage people to spend/borrow more money to spur the economy. First time homebuyers have been eligible to receive up to $8,000 as a tax credit since January as part of the economic stimulus package.
So that previous homeowners won’t feel left out and have to subsidize their neighbors home purchase, this new legislation allows previous homeowners to participate as well.
This isn’t a deduction, but a credit. Remember that a “tax credit” means that the IRS credits your tax liability account. A deduction just lessens the amount you’re taxed on.
Here are the details of the homebuyer’s tax credit:
Ten percent of the purchase price of your primary residence, up to a max of $8,000 is available for first time homebuyers, $6,500 for repeat buyers. “First time” buyers are defined as someone who hasn’t owned a home in the previous 3 years. Repeat buyers must have owned their current home at least 5 years. The tax credit isn’t available for homes costing over $800,000.
If you make less than $125,000 per year as an individual or less than $225,000 as a couple filing jointly (another marriage penalty), you are eligible. Those with individual incomes up to $145,000 and joint up to $245,000 are eligible for reduced benefits.
There IS a deadline! You have to sign your purchase agreement no later than April 30, 2010 and close on the home no later than June 30, 2010. If you’re a military member, the deadline is extended for one year if you’ve served outside the USA for at least 90 days between January 1, 2009 and May 1, 2010.
How to apply for the first time homebuyer tax credit
You can claim the tax credit on your federal income tax return. If the credit exceeds your tax liability, you will receive a refund. Those taxpayers who want an immediate refund, you can amend your 2008 return and claim your credit.
Critics of the legislation say the tax isn’t properly targeted because most people would’ve bought these homes anyway, but many Realtors disagree. They claim that 350,000 out of the 1.4 million homes already bought were purchased because of the credit.