Give Us a Break: New Tax Credits for Homeowners
Most tax breaks for homeowners are worthless to those who don’t itemize deductions on a Schedule A. Which is about 63% of Americans! The tax benefits of home ownership go mostly to the affluent, who generally have mortgage interest and other deductible expenses that exceed the standard deduction of $5,450 for singles, $10,900 for married couples, and $8,000 for heads of households.
So those with lower income may derive less financial benefit from homeownership. However, the new housing reform law did throw in a benefit to those who take the standard deduction. Even taxpayers who take standard deductions will be able to subtract property taxes from their taxable income (up to $1000 for married couples and $500 for others). Add this credit to the $7500 first time homebuyer tax credit and you get at least 8000 reasons to buy this year if you can swing it.
For the less affluent, the fact that the $7500 is a refundable credit is critical. The credit isn’t even available for single taxpayers whose AGI exceeds $95,000 and married couples with an AGI over $170,000. But even people who pay little or no tax benefit from this credit. For example, Joe Paycheck has $2,500 in federal taxes withheld from his salary during 2008. His tax bill for the year is $3,000. Normally, Joe would have to cut the IRS a check for $500 on April 15th. But in 2008 Joe became a first time home buyer. So he’s eligible for a $7,500 tax credit. Instead of paying the IRS $500, Joe gets a check for $7,000 (the $7,500 credit minus the $500 owed). Not bad.
There is a little catch. The credit gets repaid to the IRS over time ($500 per year for 15 years). If the home is sold before then, the unpaid credit would be repaid from the profit of the home sale. If there isn’t enough profit from the home sale, the credit is written off and the IRS doesn’t get repaid. So a first-timer could buy a house, live in it for a couple of years and sell it, and even if there was no profit on the deal the seller would be $6,500 ahead (the $7500 credit less the $1,000 repaid over two years). So there is a sizable upside to the process. If considering a first time home purchase, check with a tax pro for the whole scoop on the new tax credits. Then check with a lender to see if you can afford to become a first time home buyer.
Tags: 7500 tax credit, first time home buyer, home owner tax deductions, housing reform, new housing law, new tax credits
August 19th, 2008 at 5:04 am
This is great! Except as a single mother of 2 children, I closed my first house the first week of April. Before the 9th. Guess I am out of luck.
August 26th, 2008 at 9:49 am
That’s a bummer. At least you probably got a good deal on your house and a decent interest rate. If rates keep increasing you will probably find that you got a better deal than people who waited.
August 26th, 2008 at 2:11 pm
Why April 9th? My husband and I bought our first house on April 8th
Guess we are out of luck.
September 14th, 2008 at 9:32 am
I purchased a home in 2006 when I was still single. Since I got married this year 2008 and purchased a home with my new wife who is a brand new homeowner, is she eligible to claim this tax?
September 17th, 2008 at 9:50 am
Unfortunately you won’t be able to take advantage of the credit.
The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.
September 30th, 2008 at 6:49 pm
I am in the market and wondered if the tax credit is available for multi-family units, like a duplex or if it is only available for a single family unit.
October 2nd, 2008 at 11:53 am
If the tax credit is for the 2008 tax year, then it does not matter if you made the purchase before April 15th or not. April 15th referenced above is just the date everyone has to pay taxes, it is not the must purchase after date.
October 2nd, 2008 at 12:14 pm
My mistake, this is the period for qualification.
Only homes purchased on or after April 9, 2008 and before July 1, 2009 are eligible.
October 6th, 2008 at 12:21 pm
Can this credit be taken if you itemize deductions?
October 8th, 2008 at 11:54 am
I bought house in oct 2008, but do not want the credit in 2008 tax return, can i take the 7500 credit for tax return of 2009
John
November 4th, 2008 at 4:11 pm
Hi Ginny,
Tax credits are not the same as deductions and so it doesn’t matter if you itemize or not.
John, I believe that you get it this year–I haven’t seen anything about being able to take it next year. Although a back-door way to do what you want would be to file without claiming it, then file an amended 08 return the following year and claim it then. But why would you want to? It’s a refundable credit, meaning that you get the whole thing regardless of how much tax you pay. Why not have it now, available for investing, paying off debt, etc?
December 11th, 2008 at 3:40 pm
That really stinks because we closed on our house on April 8th. Seriously, it really bites!!
February 8th, 2009 at 1:07 pm
Does anybody know why they chose the date April 9th? Myself, like many others had a closing date right before this date and could absolutely use this loan! Why does someone who purchased their house on April 9th deserve this loan more than me who purchased a week earlier? And why shouldn’t everybody know ahead of time, like the people who are deciding to close on a certain date because they already know about the tax credit? I obviously would’ve closed a week later if I would’ve known. This is completely screwed up to me. I’m begging for a explanation-anybody?