If you’re sitting in your apartment listening to the upstairs neighbors blast their music and thinking about how nice it would be to have your own house, then don’t wait. Now is the time to buy. First, the market is indeed a buyer’s market, even though Omaha hasn’t suffered from the housing downturn as much as other cities. Most importantly, however, first-time homebuyers have less than two months to qualify for the federal housing tax credit of up to $8,000.To many, it sounds too good to be true: Under the American Recovery and Reinvestment Act of 2009, the government will give you a tax credit — which translates to cash — of 10 percent of the cost of the house, up to $8,000. Just for buying your first house. It’s true, though, and it’s too good of a deal to pass up. But you only have until Nov. 30 to qualify for the tax credit, and this means your closing must be no later than Nov. 30.
Who Qualifies?
To qualify for the tax credit, you must be a first-time homebuyer. For the program, the IRS defines a first-time homebuyer as someone who has never owned a home or who has not owned a home for three years prior to purchasing a home during the program.
The tax credit applies to single taxpayers with incomes up to $75,000 or married couples with income up to $150,000. As I said before, the tax credit is equal to 10 percent of the purchase price of the home, up to $8,000, and unlike previous programs like the one in 2008, homebuyers do not repay the tax credit amount. This is not a loan; it’s a fantastic incentive.
To qualify for the tax credit, you must purchase the house — and this means close on it — before December 1. That’s why now is the time to act. By the time you obtain preapproval for a mortgage loan, look at houses, go through the inspection process and close, November 30 will be here in no time. Considering that closing takes 30 to 45 days, you must start the mortgage loan process no later than Oct. 30, earlier to be on the safe side. You haven’t a day to waste.
Why Is it Called a ‘Tax Credit’?
As a tax credit, you can apply the $8,000 to taxes you owe the IRS. However, it’s what’s called a “refundable tax credit,” which means that if no or less money is owed to the IRS, then the full amount is paid to you.
In short, here’s what the IRS is saying:
Say you owe $7,000 in taxes for the year, and your withholdings from your paychecks equal $7,000. During the year, you buy a house for $92,000. You qualify for the full $8,000 tax credit and you don’t owe the IRS taxes, so the IRS will send you a check for $8,000.
Now say you owe $7,000 in taxes for the year, and your withholdings from your paychecks equal $8,000 (you overpaid by $1,000). During the year, you buy a house for $92,000. You qualify for the full $8,000 housing tax credit, so the IRS will send you a check for $8,000 and another check for the $1,000 you overpaid in taxes.
In the third scenario, say you owe $7,000 in taxes for the year, and your withholdings from your paychecks equal $5,000 (you underpaid by $2,000). During the year, you buy a house for $92,000. You qualify for the full $8,000 housing tax credit, but you owe the IRS $2,000. The IRS will send you a check for $6,000 and you are square for the year.Why Take Advantage of the Tax Credit?
If you’re considering home ownership, then you’ve probably run through the list of benefits of owning your own home: Mortgage payments go toward the purchase of your house rather than a landlord’s pocket, you can paint and decorate the way you really want, you have much more privacy, you never have to move again, you have a home that is truly yours.
And the federal housing tax credit is one more benefit you can get if you buy now. You might never again find a time when someone is going to give you $8,000 to buy a house. With this tax credit, first-time homebuyers can start out in their new homes with money in the bank. You can use the money to paint and decorate, or you can fix minor problems noted in the inspection report. You could also use the tax credit to purchase instant equity in your new home by putting, say, half in the bank and half toward your mortgage principal.
Moreover, you don’t have to worry about sinking all your money into a down payment and then having nothing left in the bank. Even if you do use all your savings on the down payment, you’ll have $8,000 in the bank when you receive your tax credit. Furthermore, if you don’t have money for a down payment, family members might be more likely to lend you the money knowing you can repay them as soon as you receive the tax credit.
What Types of Homes Qualify?
Any home that will be used as a principal residence qualifies for this tax credit, including single-family detached homes, townhomes, condos, manufactured (mobile) homes and even houseboats. You cannot, however, qualify for the tax credit if you purchase a home from a family member (parents, grandparents, children) or a spouse.
How Do I File the Tax Credit?
In order to file your federal housing tax credit, you or your tax professional must complete IRS Form 5405. For around $40 you can have a tax professional complete the form for you.
And here’s another great thing about the tax credit: You can file it as an amendment to your 2008 taxes, or you can file it with your 2009 taxes. For some homebuyers, one is not more beneficial than the other. For others, filing it for one year versus the other might be more beneficial. If you aren’t sure, ask your tax professional.
If you file the tax credit an amendment to your 2008 taxes, you can file it immediately after the purchase of your home, putting that money in your pocket sooner. Typically the IRS sends tax credit checks within eight to 12 weeks of receiving the paperwork. It really is that easy.
If you’re smart about buying a house, you have plenty of time to find and buy your first home before Nov. 30. With prices low, you’re sure to find a house within your budget, and the tax credit sweetens the deal, ensuring that you have a nice nest egg to start out with in your new home.
