Carmel, IN — February 16, 2009 — The $787 billion stimulus bill is made up of tax cuts and spending programs aimed at reviving the U.S. economy. One of the major benefits of the plan is a tax credit for new homebuyers. According to the plan, first-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit.
It’s important to remember that the $8,000 tax credit is just that… a tax credit. The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if you were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, you would owe nothing.
Better still, the tax credit is refundable, which means you can receive a check for the credit even if you have little income tax liability. For example, if you’re liable for $4,000 in income tax, you can offset that $4,000 with half of the tax credit… and still receive a check for the remaining $4,000!
The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.
The tax credit is applicable to any home that will be used as a principle residence. Based on that guideline, qualifying “homes” include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principle residence also qualify. Buyers will have to repay the credit if they sell their homes within three years.
- New buyers: The tax credit included in the economic stimulus legislation is much narrower than the $15,000 proposal. This credit is equivalent to 10 percent of the purchase price of the home—although it’s capped at $8,000—and applies only to first-time home buyers and principal residences. But unlike an earlier $7,500 home buyer tax credit, this one does not have to be repaid.
- First-time buyers defined: For the purpose of this legislation, a “first-time home buyer” is someone who hasn’t owned a principal residence for three years before buying a house. (The date of purchase is considered the day that the title is transferred.) That means if you’ve owned a vacation home—but not a principal residence—within the past three years, you would still qualify for the credit.
- 2009 buyers only: Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit. Anyone who bought a home last year won’t be able to take advantage of it.
- Refundable: Because the tax credit is “refundable,” qualified buyers can take advantage of it even if they don’t have much tax liability.
Here is a chart comparing the 2008 credit versus the new stimulus passed for 2009:
Major Modifications Italicized
| February 2009 FEATURE | CREDIT AS CREATED JULY 2008 APPLIES TO ALL QUALIFIED PURCHASES ON OR AFTER APRIL 9, 2008 | REVISED CREDIT – EFFECTIVE FOR PURCHASES ON OR AFTER JANUARY 1, 2009 AND BEFORE DECEMBER 1, 2009 |
| Amount of Credit | Lesser of 10 percent of cost of home or $7500 | Maximum credit amount increased to $8000 |
| Eligible Property | Any single family residence (including condos, co-ops, townhouses) that will be used as a principal residence. | No changeAll principal residences eligible. |
| Refundable | Yes. Reduces (or can eliminate) income tax liability for the year of purchase. Any unused amount of tax credit refunded to purchaser. | No changePurchasers will continue to receive refund for unused amount when tax return is filed. |
| Income Limit | Yes. Full amount of credit available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). Phases out above those caps ($95,000 and $170,000). | No changeSame income limits continue to apply. |
| First-time Homebuyer Only | Yes. Purchaser (and purchaser’s spouse) may not have owned a principal residence in 3 years previous to purchase. | No changeStill available for first-time purchasers only. Three-year rule continues to apply. |
| Revenue Bond Financing | No credit allowed if home financed with state/local bond funding. | Purchasers who utilize revenue bond financing can use credit. |
| Repayment | Yes. Portion (6.67% of credit or $500) to be repaid each year for 15 years, starting with 2010 tax filing. | No repayment for purchases on or after January 1, 2009 and before December 1, 2009 |
| Recapture | If home sold before 15-year repayment period ends, then outstanding balance of repayment amount recaptured on sale. | If home is sold within three years of purchase, entire amount of credit is recaptured on sale. Applies only to homes purchased in 2009. |
| Termination | July 1, 2009(But note program changes for 2009) | December 1, 2009 |
| Effective Date | Purchases on or after April 9, 2008 and before January 1, 2009. Repayment to begin for 2010 tax year. | All revisions are effective as of January 1, 2009 |
