Want $8,000 back on your taxes? First Time Home Buyer Tax Credit

2009 Tax Credit for First Time Home Buyers.
By: Keller Williams Realty, Inc.
Would you like $8000 back on your taxes this year?

We've been hearing a lot of questions about the new tax credit. Who qualifies? How does it work? How long will it last? Here, we’re taking an in-depth look at the $8,000 tax credit for first time home buyers.

According to the new legislation, a first time home buyer is defined as someone who has not owned a principle residence in the past three years. Those three years are counted up to the date you take possession of the house you buy in 2009. This means that even if you’ve owned a home in the past, you can still take advantage of the tax credit as long as you haven’t purchased a primary residence since 2006.

The same goes for married tax payers - they must both be first time home buyers. For non-married joint buyers, only one of them needs to be a first time home buyer, or someone who hasn’t owned a primary residence in the past three years.

Qualifying homes include:

    · New homes
    · Homes that are being re-sold
    · Condos
    · Townhomes

The main restriction is that the credit is only for those who buy a home as their primary residence. So investors looking to buy a rental property would not qualify for the credit. However owning a vacation home or a rental property already does not neccessarily disqualify you from taking advantage of the credit (as long as you haven’t owned a primary residence in the past three years).

A Look at the Numbers

The tax credit is equal to 10% of the purchase price of the home, up to $8,000. The amount of the credit you can qualify for is related to how much money you earn. Here’s how the credit is scaled:

    · Single home buyers earning 95K or less qualify. If you make 75K or less, you
      qualify for 100% of the $8000. If you make halfway, 85K, you qualify for 50%
      or $4000. The credit phases out gradually between 75K and 95K of income. For
      example, if you make halfway between the income limits, 85K, you qualify for
      up to half of the credit.

    · The same rate applies for married couples and joint buyers whose incomes
      limits are doubled to $150,000 to $170,000. Married couples or joint buyers
      whose incomes are less would receive the full $8000 credit.  At an income
      level of  $160,000, halfway between 150 and 170, the buyers would receive half
      the credit – or $4,000.  And the credit phases out altogether at $170,000.

This credit represent a significant amount of money. One of the biggest points of difference for the new credit from the one congress passed in July of 2008, is that the new credit does not have to be paid back.

In addition, it's refundable, which means that if you’ve paid all your taxes as you go with an automatic payroll deduction, you would receive an $8,000 check from the IRS.

If you're committed to buying a house in 2009 and want to use the $8000 tax credit for a downpayment, consult with your certified public accountant.

In Summary

Qualifying home buyers will need to make their home purchase between January 1, 2009 and December 1, 2009. And the home has to remain their principal residence for the following three years.

The new tax credit coupled with historically low mortgage rates and rising affordability, offers buyers a great opportunity if they act fast.

If you’re interested in learning more about the new tax credit or about homes in your area, speak with me soon.
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First-Time Buyers' Tax Credit

Summary of First-Time Homebuyer Tax Credit
By; Marcie Geffner: Thirdage.com
The government's first-time homebuyer tax credit is not really a credit, it's a loan that will need to be repaid. Make sure you read the fine print.

If you're planning to buy a home in the next 10 months, you may be eager to take advantage of the federal government's latest effort to jump-start the nation's moribund housing markets: A tax credit of up to $7,500 for certain homebuyers.

The credit may appear to be an attractive opportunity, but you should be sure you read the fine print before you elect to claim it on your federal tax return.

"The big story is that it is not a credit. It is a loan, and you are going to have to pay it back, so you'd better make sure that you have the money," says John W. Roth, senior tax analyst at CCH Group, a Riverwoods, Ill.-based company that provides tax software, services and information.

"If you claim the credit, you could end up with some tax issues a couple of years down the road because of the tax liability, and if you sell the house, there is a possibility that you could have a bigger tax bill."

With that warning in mind, here's a summary of the rules.

First-time homebuyer tax credit rules

1. The tax credit is not a deduction

2. The tax credit is repayable to the federal government

3. Selling your home before the 15 years are up?

4. The credit also will be written off if you die before it's repaid

5. The tax credit is restricted to 'first-time homebuyers

6. The tax credit may be taken only for the purchase of a principal residence

7. Modified adjusted gross income limits

8. Some may get a partial credit

9. Technically, the credit is equal to 10 percent of the purchase price of the home

10. The home must be purchased on or after April 9, 2008

11. Buying a home in 2009?

12. The credit cannot be used with mortgage-revenue bond financing

1. The tax credit is not a deduction, but rather a true credit in the sense that your federal income tax liability will be reduced dollar-for-dollar up to the amount of the credit you're entitled to take. For example, if you owed federal income tax of $8,000 and you took the maximum credit of $7,500, your tax bill would be cut to $500. The credit is also refundable: If you owed, for instance, $1,500 in income tax and, again, you took the maximum credit, your tax liability would be zeroed out and you'd get a check for $6,000 from the government.

2. The tax credit is repayable to the federal government. The total credit is divided into small bits of 6.67 percent, each of which is due annually for 15 years. That means if you claimed the maximum credit of $7,500, you'd have an additional tax liability of $502.50 each year for 15 years. No interest is charged.

3. If you sell your home before the 15 years are up, the remainder of the credit that you haven't yet repaid will become due. If you sell your home at a loss, the government will write off the balance of the credit that you still owe.

4. The credit also will be written off if you die before it's repaid. Special rules apply to transfers of property between spouses or incident to divorce; or if the home is subject to "involuntary conversion," such as being destroyed by a natural disaster; or is seized by a government authority though the exercise of eminent domain.

5. The tax credit is restricted to "first-time homebuyers," but the definition includes anyone who didn't have an ownership interest in a principal residence during the prior three years. If you're married, you and your spouse must fit that definition. An ownership interest in an investment property or vacation home is not a disqualification. The rules aren't entirely clear as to how the tax credit will be allocated if two unmarried people buy a home together and only one of them meets the definition.

6. The tax credit may be taken only for the purchase of a principal residence, which means a home where you plan to live most of the time. The home may be a detached house, condominium, town house, manufactured (aka mobile) home or houseboat. It must be located in the United States. A home purchased from a "related party" (e.g., a parent or sibling) is not eligible.
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Mortgage Applications Increase as Rates Decline

Mortgage applications bounced back last week after nearly a month in the doldrums when the number of applications fell to a seven-month low.
By: Mortgage Bankers Association: REALTOR®Magazine
The market index compiled by the Mortgage Bankers Association rose 6.6 percent on a seasonally adjusted basis to 548.2 points from 514.4 points the previous week.

On an unadjusted basis, the index increased 6 percent compared with the previous week and rose 17.2 percent compared with the same week a year ago.

Both purchases and refinances were up with the purchase share increasing 7.3 percent and refinances rising 5.9 percent.

Average mortgage rates were as follows:

*30-year fixed-rate mortgages decreased to 5.44 percent from 5.50 percent.
*15-year fixed-rate mortgages decreased to 4.93 percent from 4.99 percent.
*1-year ARMs remained unchanged at 6.54 percent.
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Southern California home prices rise slightly in May

The median price was $249,000, which is up less than 1% from $247,000 in April. It was the first month-to-month gain since July 2007.
By: Peter Y. Hong: latimes.com
Southern California's median home price rose slightly in May for the first time in nearly two years. But the increase was more reflective of a change in the types of homes sold than an end to falling values, a real estate research firm reported Wednesday.

The $249,000 median price in May was up less than 1% from April's $247,000 figure, and marked the fifth-straight month the median has held at roughly $250,000, according to San Diego-based MDA DataQuick.

The modest rise reflects increasing purchases at the high end of the housing market, where sales have been virtually frozen. For much of the last year, most home sales have occurred in the low end of the housing market, with banks unloading foreclosed properties at deep discounts, dragging the median price down.

Now, more expensive properties are selling, which raises the median, through a market paradox: many of those homes sold after owners cut prices to lure buyers. Still, stirring sales activity at the high end is a sign that the market is crawling toward equilibrium.

"As more sellers get realistic, more buyers get off the fence and more lenders offer reasonable terms for high-end purchase financing, we'll see a more normal share of sales in the more established, higher-cost areas that have been nearly comatose," said John Walsh, president of San Diego-based MDA DataQuick.

A slowly growing number of buyers like Geoff Graham, 40, is changing the mix of homes sold. Graham and his husband, James Tee, 35, bought a new three-bedroom row house in San Diego's Hillcrest neighborhood last month for $750,000.

The couple had admired the place a year ago but couldn't believe the seller wanted $995,000. "I thought, 'What a cool place, but who in the world would ever pay so much money for it ?' " Graham said.

The answer was no one.

In January, Graham and Tee saw that another row house in the development had sold for $760,000 and decided that price was within their comfort zone. The $10,000 state tax credit for new-home purchases also "made us feel a little more comfortable paying that price," Graham said.

Homes priced at $500,000 and above accounted for 17% of Southland home sales in May, up from 15% in April, DataQuick reported.

The median price is the level at which half of the homes are sold at higher prices and half at lower prices. As higher-priced homes have trickled into the sales mix, foreclosures are less dominant. In May, foreclosed homes accounted for 50% of sales, down from 54% in April and a peak of 57% in February.

The April-to-May Southern California median price increase was the first month-to-month gain since July 2007, when it moved from $502,000 to $505,000, which was the market's peak.

May's price was a 51% drop from that peak, and it was down 33% from the May 2008 median price of $370,000.

Lower prices continued to drive purchases: the 20,775 Southern California homes sold in May was up 1% from April and 23% above the May 2008 sales total.

The housing market "is starting to reach the bottom; prices have reached levels where they make sense again," said Christopher Thornberg, a Los Angeles economist who was an early forecaster of the housing bubble.

"But hitting the bottom is different from coming off the bottom," he said, noting that prices will probably remain low as long as "we still have a massive wave of foreclosures to deal with."

About 150,000 homes in California were in some stage of foreclosure in May, according to ForeclosureRadar, an online seller of default data.

The median price climbed most in the region's more affluent counties. Orange County posted the largest monthly median price increase among the Southern California counties. Its $410,000 median price was up 8% over its April median of $380,000. Ventura County's median was up 4% in May, to $355,000 from $340,000 in April. San Diego also saw a modest 2% price increase in May, to $295,000 from $290,000 in April.

Those counties rank first, second and third, respectively, in household income among the six counties, according to the U.S. Census Bureau.

The median home price in May essentially matched April's figure in Los Angeles ($300,000), Riverside ($180,000) and San Bernardino ($137,000) counties.

San Diego County may be a bit ahead of the local housing market curve: Its median sale price peaked at $517,500 in November 2005. That peak occurred 1 1/2 years before Los Angeles County hit its high median price in May 2007, at $550,000, according to DataQuick.

Those 18 additional months of price declines may have worn down the resistance of some San Diego sellers who until recently had expected to sell properties for near-peak prices. Kris Berg, a San Diego broker who works in the Scripps Ranch community, said homes in her area listed for around $700,000 are now selling quickly.

Those same homes might have sold for more than $900,000 at the height of the market, and until recently sellers continued to demand such prices, with few if any takers.

"A year ago, two years ago, so many sellers were still insisting their house was special. Now, the ones who want to sell are getting it; they're pricing their homes more appropriately," Berg said.
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