Summer Scanlin Real Estate Agent College Station, TX (979) 255-5195 Contact Profile
There have been several people asking me questions all day today about the new first time homebuyer tax credit. What does it mean? Can I get it to buy a house now?
First the tax credit is a an actual "credit" NOT a deduction. If you owe $1,000 to the IRS at the end of the year, and then apply the credit you will receive a credit of $8,000 and a refund check of $7,000 ($8,000 credit-$1,000 you owe). This is very different from a deduction. A deduction is an amount that reduces your taxable income. If my taxable income is totaling $40,000 and I take a deduction of $8,000 then I now only pay taxes on $32,000. This is nice but the NEW TAX CREDIT is much more of a benefit for the first time homebuyer.
Secondly, you can file for the credit on your 2008 return even if you have already filed it. You can elect to treat a qualified home purchased in 2009 (as if the purchase occured on December 31, 2008. If you are buying a home and wish to claim it on your 2008 return, but have already filed the return with the IRS, you may file an amended 2008 return claiming the tax credit instead of waiting till 2010. Many people will receive a nice refund for downpayment assistance
on the purchase a home. There are restrictions and/or rules involved when taking the credit prior to the home purchase. I am not exactly clear how this option is working yet but will update with further details. A buyer I have been working with has elected this option and waiting for his refund to buy a home. This is great news for anyone considering buying a home but may have hesitated due to closing costs or down payment constraints.
An alternative to getting your credit sooner than filing your 2009 return is to begin reducing your tax withholding (up to the credit amount) so you can start saving the cash you need to buy the home in 2009. Homebuyers seeking this option should get with their employer to adjust their W-4. Homebuyers should consult a tax professional to be sure they meet the income restrictions and understand what will happen if withholding is reduced but a purchase is not made under the qualifications set forth by the federal housing tax credit.
Prior to making any decisions on amending a 2008 return or reducing withholding from a paycheck to save for a down payment, consult with a tax professional to avoid any misunderstandings or liability for repayment to the IRS of income tax, penalties and interest charges.
By Summer Scanlin Real Estate Agent with ERA Allstar Properties
Posted on February 21, 2009 09:11 PM