If you have been thinking about buying your first home, or making a move from your existing home, the time has never been better! Already, the combination of historic low interest rates and affordable homes are enough to make home buying a good financial decision. With the government just recently extending and enhancing the homebuyer tax credit, now is the time to jump in!

The newly approved tax credit legislation extends the benefits of the initial $8,000 tax credit until June 30, 2010 and enhances it by increasing the income eligibility. The new bill also includes a $6,500 tax credit for repeat or move-up buyers.

It is important to note that a ‘tax credit’ is different from a ‘tax reduction’. A ‘tax credit’ is a dollar for dollar reduction in what you as the taxpayer owes. If you owe less in taxes than the allowable tax credit, the government will pay you the difference! You can begin to ‘cash in’ on the credit early, even before buying if you are certain to make the purchase in the required timeframes, by reducing your income tax withholding. This can also allow you more money from your paycheck to begin saving for your next purchase.

Although we strongly encourage you to seek qualified and legal tax counsel, here is a summary of the important features and qualifying guidelines to the new legislation:

$8,000 FIRST TIME HOME BUYER (FTHB) TAX CREDIT:

• Up to $8,000 tax credit for homes purchased (closed) before June 30, 2010
• Binding purchase contracts must be in effect before April 30, 2010
• Must not have owned a home for at least 3 years prior to new purchase
• Income limitation of $125,000 for single taxpayer/ $225,00 for married filing joint taxpayers (additional $20,000 income for either single or joint taxpayers is allowable but with modified and reduced tax credit)
• If tax credit exceeds your tax liability, the difference is ‘refundable’ to you
• Home purchase must be your principal residence
• Bonus: Co-mortgagor parents income does not count against children’s eligibility for tax credit

FTHB Tax Credit Restrictions:

• Home purchase from relative including spouse, parent, grandparent, child or grandchild
• Non-resident aliens
• Separated spouses (possible to claim repeat buyer tax credit– consult professional tax advice)
• Adjusted gross income exceeding $145,000 for single taxpayer and $245,000 for joint taxpayers (see above)

$6,500 REPEAT/MOVE-UP BUYER TAX CREDIT (NEW)

• Tax credit is equivalent to 10% of home’s purchase price
• Maximum $6,500 tax credit for homes purchase (closed) before June 30, 2010
• Binding purchase contracts must be in effect before April 30, 2010
• Must have owned and resided in a home for at least 5 years of the past 8 years prior to new purchase
• Income limitation of $125,000 for single taxpayer/ $225,00 for married filing joint taxpayers (additional $20,000 income for either single or joint taxpayers is allowable but with modified and reduced tax credit)
• New home does not have to be more expensive than prior home to qualify

Repeat/Move-up Buyer Tax Credit Restrictions

• Home purchase from relative including spouse, parent, grandparent, child or grandchild
• Non-resident aliens
• Adjusted gross income exceeding $145,000 for single taxpayer and $245,000 for joint taxpayers (see above)
• No tax credit allowed for home purchases over $800,000

It is important to note the tax credit may have to be paid back if the new residence ceases to be your primary home within three years from purchase. For more detailed information and necessary tax forms, go to www.irs.gov or contact your tax professional. Now is time to take advantage of this program before it goes away for good!

Philip Duncan
Executive Vice President

Tags: auburn, davis, first-time home buyer, folsom, home loan, homebuyer, lender, purchase, roseville, sacramento, tax credit, tax credit program, vitek

This entry was posted on Thursday, November 12th, 2009 at 9:10 am and is filed under VITEK Mortgage Group, tax credit. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.