by Carla L.
Davis
Good news has made its way
into the real estate arena this summer -- in
the form of the Housing and Economic
Recovery Act of 2008. What does this Act
mean for you?
It means a lot if you are
in the market to be a first time homebuyer
-- up to a $7,500 tax credit if you purchase
before July 1, 2009. And there's more good
news. First time homebuyers is defined as,
"a buyer who has not owned a principal
residence during the three-year period prior
to the purchase."
This means for all those
markets that have started to stabilize, now
could be a great time to buy.
Let's take a closer look
at just what this new incentive entails.
In order to receive the
tax credit you must have purchased your home
-- single-family detached, townhouses and
condominiums, manufactured homes, and
houseboats -- between April 9, 2008 and July
1, 2009. Purchase being the closing date.
You must also meet income
requirements. But even if you are over the
modified adjusted gross income level of
$95,000 (single) or $170,000 (married), you
may be able to receive partial tax credits.
And getting started with
the tax credit program is simple. You claim
the tax credit on your federal income tax
return. That's it. It doesn't require any
other confusing, fancy paperwork.
You can even access the
funds quick -- instead of waiting to file
your return. The NAHB reports, "Buyers who
believe they qualify for the tax credit are
permitted to reduce their income tax
withholding. Reducing tax withholding (up to
the amount of the credit) will enable the
future home buyer to accumulate cash by
raising his/her take home pay. This money
can then be applied to the downpayment.
Buyers should adjust their withholding
amount on their W-4 via their employer or
through their quarterly estimated tax
payment. IRS Publication 919 contains rules
and guidelines for income tax withholding."
What's tricky about this
Act -- its a tax credit, meaning that you
must repay the government either over the
next 15 years (no interest charged), or when
you sell the home, if there were sufficient
capital gains from the sale.
The NAHB gives this
example, "A home buyer claiming a $7,500
credit would repay the credit at $500 per
year. The home owner does not have to begin
making repayments on the credit until two
years after the credit is claimed. So if the
tax credit is claimed on the 2008 tax
return, a $500 payment is not due until the
2010 tax return is filed. If the home owner
sold the home, then the remaining credit
amount would be due from the profit on the
home sale. If there was insufficient profit,
then the remaining credit payback would be
forgiven."
So why do you have to
repay this credit? Because this is just that
-- a credit, not a deduction. The
government's hope is that this credit will
stimulate the housing market ... and in turn
the economy. By providing first-time home
buyers with a little financial boost --
remember it's interest free -- it could do
just that.
