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Generous Tax Credit Available for First Time Home Buyers

Posted by Jamie Downey  February 24, 2009 07:45 AM

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How can I take advantage of the $8,000 tax credit Congress has made available to first time home buyers? Also, how and when will I receive this credit?

As part of the American Recovery and Reinvestment Act of 2009, a.k.a. the Stimulus Bill, first time home owners are now eligible for a tax credit of $8,000. The following summarizes the eligibility requirements of this credit:

Timing – Home owners who purchase their house between January 1, 2009 and December 1, 2009 are eligible for the credit.

First time home buyer – The law states that the credit is available to first time home buyers. However, the law is a bit more flexible and allows anyone who has not owned a home for three years to qualify. For example, if you sold your home on May 24, 2006, you will have to close on your new home subsequent to May 24, 2009 to qualify. The closing date in this situation would make a significant difference on your wallet.

Claiming the credit – You will receive the tax credit when you file your individual tax return. As part of this filing, you will need to complete Form 5405 which determines the amount of credit you will receive. The credit can be claimed on either your 2008 or 2009 tax return. If you already filed your 2008 tax return, you can amend the return to obtain the credit.

Credit vs. deduction – Everyone should understand that this is a credit to the tax payer, not a deduction. A tax credit is a dollar for dollar benefit to the tax payer. So a first time home buyer should be $8,000 wealthier as a result of this credit. A deduction merely decreases your taxable income. Furthermore, this tax credit does not have to be repaid to the government like the “credit” available to first time home buyers in 2008.

Credit limits – The credit shall be equal to 10% of the purchase price of the home, not to exceed $8,000. Since the median home and condominium price in Massachusetts is significantly more than $80,000, most will receive the full $8,000 credit.

Income limits - Single taxpayers with incomes up to $75,000 and couples with income of up to $150,000 qualify for the full credit.

It seems ironic that while everyone seems to blame the housing “bubble” as the major cause of current economic malaise, Congress, the President, the Federal Reserve et al are trying to artificially re-inflate the values of homes back to bubble levels with lower interest rates, tax credits, and every other trick. Hopefully this time the outcome will be different. But I digress.

The Managing Your Money blog is here to help you with any tax or personal finance related questions. We encourage you to submit your question at the right side of this webpage.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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ABOUT MANAGING YOUR MONEY
Local finance professionals share insights and advice on issues such as budgeting, managing debt, and retirement planning.

About the contributors

D. Abraham Ringer is a CERTIFIED FINANCIAL PLANNER practitioner and a Financial Adviser with Morgan Stanley Global Wealth Management in Boston. He is registered in MA, NH, NY and several other states to which his articles are directed. For more information please visit www.morganstanleyfa.com/ringer
Financial Planning Association™ of Massachusetts has 900 members who specialize in the financial planning process. Many of its members engage in philanthropic pro bono work in their communities, recommend legislation, elevate public awareness, promote financial literacy, and advocate for sound economic and tax policies.
Odysseas Papadimitriou is the founder of CardHub.com, a credit card and gift card marketplace, and WalletHub.com, a personal finance site. He has more than 13 years of experience in the personal finance industry, and previously served as senior director at Capital One.

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