Thursday, October 8, 2009

Racing For The Homebuyer's Tax Credit? Here's Some Tips

Awareness for the First-Time Home Buyers Credit is high, but some perspective buyers are nevertheless confused as to whether they can qualify.
“Any time you talk about taxes it’s confusing,” Bob Meighan, vice president of TurboTax. “All these specific detailed rules can drive anyone crazy.”
The tax credit—which was designed to help stabilize the housing market—has first-time home buyers rushing to close on homes before the Dec. 1, 2009 deadline.
The tax credit, however, has generated sales. So much so that the real estate and housing industries are pushing for an extension of the program as well as an expansion that would not only increase the value of the credit to $15,000 credit but have it apply to all primary-residence buyers.
“Upwards of 50 percent of our sales are because of the tax credit,” says Diann Patton, sales manager and broker at Coldwell Banker Grass Roots Realty in Northern California.
The Internal Revenue Service announced this month that 1.4 million taxpayers have taken advantage of the program so far, and more are expected. The National Association of Realtors estimates that the credit will generate an extra 350,000 sales that would have otherwise not taken place. Overall, the organization expects that 1.8 to 2.0 million taxpayers will take advantage of the credit.
And, according to a survey by real estate Web site Zillow.com, nearly 18 percent of prospective first-time home buyers said extending the tax credit would be the primary factor in their decision to buy a home before the end of 2010.
But don't hold your breath. Experts say if you are planning to buy a home, waiting to see if the program is extended will backfire if it doesn't pass. Then, you're left with nothing.
If you’re considering buying a home, here’s a few tips from experts on common questions:
It doesn’t necessarily have to be your first house: "The First-Time Home Buyer’s Credit is a bit of a misnomer,” said Meighan.
You can have owned a primary home in the past, but just not within the past three years.
If you own either a vacation home or rental property and do not live in it, you still qualify too.
Income limitations: If you’re single, the amount of the tax credit you get begins to phase out by 5 percent for every $1,000 of income you earn over $75,000. For example, lets say you are eligible for an $8,000 credit and you earn $76,000 a year, $400 is shaved off the credit. Some one who makes $77,000 gets $800 taken off that credit, and so on. Any single person earning over $95,000 doesn’t qualify for the credit.
Married couples see the amount of their tax credit begin to phase out in the same way after they both earn over $150,000. The cutoff is $170,000 per couple.
Another tip: if you made too much money this year to qualify, but made below the cutoff limit last year, you can amend last year’s taxes, says CPA Fran Coet of Coet & Coet.
She offered the example of two married clients who graduated from college last year but made over $170,000 in 2009. They amended their taxes from last year because they worked only worked six months in 2008, allowing them to receive the credit.
Married couples cancel themselves out: If one person in a marriage qualifies, and the other doesn't, they both won't get the tax credit.
iStockphoto
However, if an unmarried couple buys a house together and one of them doesn't qualify, the qualifying person gets the full credit amount.
Unmarried and married couples who both qualify will share the credit and will not exceed $8,000 for the both of them.
Not always $8,000: It’s commonly referred to as the $8,000 tax credit, but the actual credit allotted is 10 percent of the home value or $8,000, whichever is less. So homes under $80,000 will get back a 10 percent tax credit.
Not just for homes: “There’s a lot of focus on the home…but an RV or motor home qualifies as well,” said Meighan, who is also a certified public accountant. Besides RVs and motor homes, he says that you can qualify even if you buy a houseboat, as long as they are used as primary residences.
Paying it back: If you move out of the home within three years of buying it, you have to pay back the credit you received.
Slow down: Real estate agents and sellers might put pressure on you to make a buy before the deadline, but Coet warns, “Don’t go and make a bad decision.”
The tax credit may be tempting, but making a purchase without doing enough research can cost you more.

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