My Blog

     If you've been waiting for the right time to buy a home, now might be it.  The Housing and Economic Recovery Act of 2008 has expanded the first time homebuyer tax credit for 2009.  The maximum credit is $8000.00 instead of $7500.00, it does not have to be paid back like the 2008 credit does, and you have until December 1, 2009 to get it.  There are a few facts about the credit that you should be aware of.

     The amount of the credit is 10% of the purchase price, up to a maximum of $8000.  So if you purchase a fixer upper for $50,000, your credit amount would be $5000.  If you buy a house for $150,000, even though 10% is $15,000, you are maxed at $8000.

     Only first time homebuyers can claim the tax credit.  A first time homebuyer is defined by IRS as "a taxpayer who has not owned another principal residence at any time during the three years prior to the date of purchase."  If you are married and your spouse owned a primary residence in the last 3 years, but you did not, you don't qualify.  If you are not married, but are buying a primary residence in 2009 with another person, and that person owned a primary residence in the last 3 years, you still qualify for the credit.  A little biased against married folks, but it is what it is. 

     If you owned a property, but it was an investment property or second home, and you purchase a primary residence in 2009, you do qualify.  Interestingly, if you owned a primary residence outside of the United States, you still qualify for the credit.  The home you are purchasing however, needs to be in the United States.  Non-resident aliens do not qualify for the credit. 

     Another interesting fact is if you bought a primary residence a few years ago, then moved out of it and made it a rental or second home, as long as it has not been your primary residence for 3 years or more, you qualify for the credit. 

     You need to be aware that you do not qualify for the credit if you buy a home from a close relative, such as a spouse, parent, grandparent, child, or grandchild.  Step-family doesn't count.   If the home does not remain your primary residence for 3 years after the date of purchase, you have to pay all of the tax credit back in the year that it stopped becoming your primary home.  Ouch!  Obviously then, you can't purchase the home, sell it the same year and claim the tax credit.  There are also income limits which will restrict how much of the tax credit you receive.

     The great thing about the credit is that it either directly reduces your tax bill, or increases your refund, dollar for dollar.  What this means is, if you owe $3000 on your taxes, and get the credit of $8000, then you will receive a refund of $5000.  If you are due a refund of $500 without the tax credit, with the tax credit your refund would be $8500.  That's a nice chunk of change to use for decorating your new home!  Even if your income is tax exempt, you still qualify to receive the credit.

     Now the big question you may be wondering is:  Can I use the funds at the closing table towards my down payment and closing costs?  The answer is yes, in some states.  Unfortunately, Nevada isn't one of them yet.  FHA allows for state agencies, like the Nevada Housing Division, or non-profits, to basically give you the credit up front to help with your down payment and closing costs.  Some states have already put programs in place to do this, but Nevada has not done this yet.  It appears from their website they are working on it, but they need to hurry because the purchase must close before December 1, 2009 to even qualify.  With short sales taking months to close, time is running out.

     If you live in a state that does have a program for you to use the money upfront, be aware that you still have to have your minimum required 3.5% down payment.  The credit can supplement your down payment, not replace.  It can also be used to cover closing costs. Check with your state housing agency for details.

     The IRS site has some helpful questions and answers and addresses specific scenarios, so be sure and check it out here:  http://www.irs.gov/newsroom/article/0,,id=206291,00.html

     If you have questions that aren't addressed at the IRS site, ask your tax preparer. 

     Remember that you need to allow at least 30 days for your purchase to close, more if it's a short sale.  If you want to take advantage of the tax credit, you should be actively looking for properties now and ready to make an offer on something very soon.  You must close on your purchase before December 1, 2009 to qualify.  Don't procrastinate and let $8000 slip away!  Call me and I can tell you how much you qualify to purchase.