First Home Purchase Tax Help
When most markets fail, the government does not do much. The housing market is different. It forms the backbone of modern America. The giant banking bailout is one big sign of its importance, but homebuyers are getting help as well.
The housing market is like the food system in the sea. You need plankton for bigger animals to survive. With real estate, you need first time buyers to fuel the market. They will buy, sell and move up, which fuels the market from the bottom up.
As a long time homeowner, you might scoff at first time buyers. You should not. Without them, you will never sell your home? Why? Well, who is going to buy it? If they people below you cannot sell, they have no money to offer to you. Without first time buyers, this is exactly what happens.
First time buyers are staying away from the current market. Regardless of all the other issues hurting this market, this is a giant problem. The government has acted swiftly to change things and get these buyers active again.
The big carrot being dangled is a tax credit created as part of the Housing and Economic Recovery Act of 2008. It is a very big carrot, indeed. How big? Try a $7,500 tax credit for first time homebuyers.
A tax credit is a beautiful thing. Why? It is applied directly to the tax amount you owe after doing your taxes. If your accountant tells you a check for $3,000 is due to the government, a tax credit is deducted directly from this amount on a dollar for dollar basis.
Assume I can claim this first time buyer tax credit in the amount of $7,500. I determine I owe $2,500 to the IRS after doing my taxes. I would then apply my tax credit to this and send in a return telling the agency to send me $5,000.
You are probably wondering if it is realistic to ask for more than I actually owed. Yes. This is a fully refundable tax credit. In plain language, this means that it does not matter what I owe. Not bad, eh?
So, is there a catch? Yes and it is very big. This tax credit is a fraud. Why? It must be paid back. Fortunately, you have fifteen years to do it. If you claim the full tax credit, this means paying an additional $500 a year which is not too bad.
The amount of money you make also can be a problem. Couples making more than $150k and non-couples making over $75k face a phase out problem. If you are making this kind of money, however, you probably should already own a home.
Will this tax credit get first time buyers back into the market? Nothing is certain with this wild market, but it certainly cannot hurt? Now if the banks would just get their acts together.
