First-Time Homebuyer Tax Credit

One of the most exciting provisions of the American Recovery and Reinvestment Act of 2009 is the $8,000 tax credit available for first-time home buyers. Combine this tax credit with the fact that home prices and interest rates are at historical lows, and it is indeed an ideal time for many first-time homebuyers to purchase a home!


Here are some things to keep in mind:

• A first time home buyer is defined as someone who has not owned a home in the last three years
• The credit amounts to 10% of the purchase price of the home not to exceed $8,000
  
• The tax credit does not need to be paid back if you continue living in the home as your primary residence for three years without selling it
  
• The home must be purchased before December 1, 2009
  
• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit
  
• You cannot purchase the home from a related party like a spouse, direct ancestor, or direct lineal descendent (child or grandchild); however, you can still qualify for the credit if you purchase a property from siblings, nephews, nieces, and others
  
• If you are married, both spouses must be first-time home buyers
  
• If more than one unmarried individual is buying the property, the credit can be split up among all the individuals who qualify. However, the total credit taken cannot exceed $8,000

How does the tax credit work?

A tax credit is kind of like a gift certificate that you can use to pay your taxes - it reduces your income tax bill on a dollar for dollar basis. Imagine paying your bill at IRS Restaurant, and then later getting an IRS Restaurant gift certificate. Normally, you would need to go back to IRS Restaurant and buy more food in order to use your new gift certificate. But what if IRS Restaurant allowed you to just turn in your gift certificate for cash? That's how this tax credit works. One of the greatest benefits of the $8,000 credit is that you can claim it on your 2008 tax returns, even if you buy a home in 2009. All you need to do is file an amended tax return with the IRS after you buy your new home and they will send you a refund check for $8,000. Just like the example of IRS Restaurant that allows you to exchange your gift certificate for cash! Remember though, you'll receive the $8,000 from the IRS AFTER you purchase the home, so you cannot use the funds to help with your down payment.
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On May 29, 2009, the Federal Housing Administration (FHA) started allowing buyers to borrow against the credit or sell it to their lender or another 3rd party in order to use the funds to help with the down payment. Unfortunately, this is only available in certain areas, contact me for more details on how this could work in your situation.

For more information about the first-time home buyer tax credit or other recent updates to the mortgage and real estate markets, just give me a call. I would be happy to assist you with your mortgage in the purchase of your new home!

To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding tax-related penalties or (ii) promoting, marketing or recommending to another person any transaction or matter addressed in this communication. I recommend that you consult with properly licensed legal, tax and investment advisors for specific advice pertaining to your individual situation.

Four Ways the 2009 Economic Stimulus Plan Benefits Home Owners and Buyers
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There are four primary sections of the 2009 economic stimulus plan that could be very beneficial if you own or are buying a home.

Benefit #1 — Expansion of Home Improvement Tax Credit

The tax credit for making energy efficient home improvements is now 30% of the cost of the improvements up to a maximum of $1,500. This means that if the improvements cost you $5,000, you would receive a tax refund of $1,500 when you file your tax returns. Eligible improvements include energy efficient exterior doors and windows, insulation, heat pumps, furnaces, central air conditioners and water heaters. Generally, your home improvement contractor and/or the manufacturer selling the improvements issues a certification that clarifies whether the improvements meet the necessary standards for energy efficiency. Most modern windows, furnaces, and air conditioners meet these requirements. If you've been holding off on making some of these improvements, now is a great time to get a move on it - especially with all the great deals that are being offered!

Benefit #2 — Expansion of First-time Home Buyer Tax Credit

The tax credit available to first time home buyers was increased from $7,500 to $8,000 for homes purchased between January 1, 2009, and December 1, 2009. Also, the credit no longer needs to be paid back as long as you live in the home without selling it for at least 3 years. The previous version of the credit expired on July 1, 2009, and required home buyers to pay the funds back over a 15 year time frame.

The income limitations remain the same ($75,000 for single tax payers claiming the full credit and $150,000 for married tax payers), as do most other qualification requirements. Also, the credit remains refundable. This means that first-time home buyers who owe less than $8,000 in taxes for the year are still eligible for the full $8,000 credit when they file their tax returns. In that case, the IRS will write you a check for the difference between $8,000 and your actual tax bill. In fact, the credit can be claimed on your 2008 tax returns that you file by April 15, 2009, even if you buy the home in 2009.

There is one catch, however: if you bought the home in 2008, the credit remains $7,500, and it still needs to be paid back over a 15 year timeframe beginning in 2011 when you file your 2010 returns.

Benefit #3 — Higher Reverse Mortgage Loan Limits

The loan limits for FHA-insured reverse mortgages have been increased to $625,500 across the entire country - not just the higher cost areas. The previous limit was $417,000 across the country. This is especially important because the FHA program is virtually the only game in town as private and jumbo reverse mortgage programs have nearly all evaporated.
Standardizing the mortgage planning process through participation with the CMPS community of experts.

This coincides with another little-known change in the reverse mortgage arena: the availability of reverse mortgages on home purchase transactions. This is a fantastic opportunity for senior citizens to buy a new home and live mortgage payment-free without having to wait for their old home to sell. Seniors could also use this strategy to buy a new home and turn the old home into a rental or otherwise wait for market conditions to improve before trying to sell the old home.
Benefit #4 — $729,750 FHA and Conforming Loan Limits Restored in High Cost Areas
The $729,750 maximum loan limit had been in force throughout 2008, but was reduced to $625,500 in 2009. The economic stimulus plan restores the $729,750 maximum. This makes higher cost homes more affordable — especially in the coastal housing markets that tend to have higher than average home values.

It is always advisable to consult with a Certified Mortgage Planning SpecialistTM (CMPS®) when navigating today's turbulent mortgage and real estate marketplace. As a CMPS® professional, I am committed, qualified and equipped to help you evaluate your mortgage options!

To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding tax-related penalties or (ii) promoting, marketing or recommending to another person any transaction or matter addressed in this communication. Also, it is important to note that I am providing this information to you as your mortgage planner, in order to make you aware of some of interesting ideas that may benefit you. I am not an investment, tax, or legal advisor, and this information does not constitute legal, tax or investment advice. I definitely recommend that you consult with properly licensed legal, tax and investment advisors for specific advice pertaining to your individual situation.