Many of my agents have been asking me about the $7500 first time homebuyer tax credit that was part of the government recent ‘modernization act’ legislation. Whether or not ‘modernization’ is the correct word is a debate for a different newsletter. I do have my doubts. Anyway, the $7500 tax credit is a tremendous tool that has come out of this legislation. If you use the information that I will give you on this, along with the information that I provide in my ’22 Ways to Fund a Down Payment’ e book, you will see many ways to purchase a home now. By the way, it is the right time to purchase and when we purchase homes we help the economy. I will soon be releasing a recorded interview with an accountant on this matter, so if you are looking to use this to help sell, please reproduce the recording or this letter and get some sales. If you are a homebuyer, call me!! Lastly, I am not an accountant nor am I bright enough to be one. Discuss tax strategies with your accountant and financial advisors.
In a nutshell, the government is looking to help promote home ownership (and spur the real estate market) by giving first time homebuyers a $7500 tax credit if they purchase a home between April 9, 2008 and July 1, 2009. This is not a gift (what is when it comes to government?). It is an interest free loan that is repayable over a maximum of a fifteen year term. The great thing is, when you buy your first home, you get all these great tax deductions that you did not have before. At an increased tax of $500 per year, to repay the loan, you will not feel the pain because of the tax deductions.
There are some caveats to all of this. You must be a first time homebuyer. This is defined by the buyer or the buyer’s spouse not having owned their principle residence over the past three years. There are income limits. Single tax payers with income up to $75,000 and married couples with incomes up to $150,000 annually qualify for the full tax credit. Buyers will qualify for a partial credit if there income falls between $75,000 and $95,000 filing single and $150,000 and $170,000 filing married. Also, of you sell your home and make a profit, you will owe the government the loan money back minus what you have repaid.
To file for the tax credit all that has to be done is claim it on the tax return. There are no additional forms to be filled out. The juicy part of this is, it is a tax credit, not an income tax credit. If a buyer that qualifies for the full tax credit has a tax liability of $15,000 and had already withheld $14,000, they would usually owe $1,000 to the government. Add the tax credit and this buyer will get a check from the government for $6,500. If they owed no tax they would get the full $7500!!! That is a down payment! It gets better………
Buyers that qualify for this tax credit can elect to file for the credit on their 2008 taxes for a home purchased in 2009. This can help a home buyer get their down payment money back that much quicker. This is where a buyer would want to talk with an accountant of qualified advisor. It is possible that filing for the credit in 2009 may get greater benefit. I am not done. How about this…..
In order to help accumulate down payment, a prospective home buyer may elect to reduce federal income tax withholding, in order to accumulate down payment funds. This is assuming that the tax credit will make up for the difference. This is a great tool to help locate down payment funds. If the buyer does not qualify for the credit however, they will have to pay the tax and may suffer penalties and late fees. It is best to discuss with an accountant if you are going to use this strategy.
This is a great tool. If you already purchased, talk to a financial advisor get your money and invest it. If you are buying a home, here is another way to recoup or fund you down payment. If you have any questions or would like to request a copy of my recorded interview with my accountant on this matter please email me at mperillie@campbellmortgage.com or call me at 203.937.3343.
The FHA 203(K) rehabilitation loan is HUD’s(U.S. Department of Housing and Urban Development) primary program for the rehabilitation and repair of single family properties. Contrary to popular belief(even among some real estate agents), HUD does not directly fund these loans. These loans are funded through HUD approved lending institutions and HUD insures the mortgage loans on behalf of the lenders.