Ignore the headlines in the newspapers and focus on the fundamentals and you’ll see that the current housing forecast is favorable for homebuyers. While housing prices may continue to drop, it is possible to close on a house at below market value and secure interest rates at historical lows.
Last Fall the government passed a bill that provided an incentive for first-time homebuyers to take the plunge: a tax credit of $7,500.
This is not new news, but I have heard so many crazy variations of what the $7,500 tax credit means to you. As your Smyrna Realtor and also a licensed CPA, I do feel that we need to clear this up.
First-time Homebuyer Tax Credit
So here are some points to consider:
- First of all, do not get too excited about receiving free money from the government. The $7,500 tax credit is actually a zero interest loan. But don’t dismiss the advantages of this opportunity. An interest-free $7,500 tax credit “loan” for 15 years means you can save a lot of money on interest payments.
- This is available to first-time homebuyers. Under the legislation, this is defined as anyone who hasn’t owned a home as their principal residence in the last three years. It is important to note this distinction as you may not have thought you qualified if you weren’t a real first-time homebuyer.
- If you’re married, the first-time homebuyer criteria applies to both spouses. So if one of you don’t qualify, then neither of you do. (Hopefully this won’t make divorce rates spike!)
- The closing date of the house must fall between April 9, 2008, and June 30, 2009.
- Your modified adjusted gross income (MAGI) must not exceed $75,000 for singles and $150,000 for married taxpayers. What the heck is MAGI? – this is essentially what you claim as all of your income on your tax return before taking deductions.
- You must repay the loan, but you have two years after applying for the tax credit to start making payments. You can also repay the loan from the profit of reselling the home, if you choose to sell within 15 years. If you do not make a profit on the sale, the remaining tax credit loan is forgiven. Otherwise, the tax credit loan is due within 15 years in annual payments.
- You do not have to claim a full $7,500 tax credit. And you can only claim the full $7,500 if you buy a home for $75,000 or more. Homes worth less than $75,000 will qualify for a tax credit of 10% of the purchase price.
- Since this tax credit is refundable (you can receive it as a tax refund after filing your federal tax return), the immediate advantage is what you can do with it. So here’s my tip and the reason you’ve read this far – if you’re thinking about buying a home in the next few months, wait to file your tax return until the day after you close, so you can claim it against your 2008 tax return. Tip #2 – don’t forget to file an extension if this means you would file after April 15th!
- Consult a tax professional for the finer details of the tax credit.
If you have been on the fence about buying a house, have a steady, secure job, and a good credit score, there is no reason to wait. Start looking so you can close before the deadline.
There are a lot of great Smyrna Vinings neighborhoods. Whether you’re looking for Smyrna Vinings new construction, a “certified, pre-owned” home or perhaps a townhome or condo, there is a great selection currently available to choose from.
Click here for an up-to-date list of Smyrna Vinings homes for sale.
If you have more questions about the tax credit or just wondering if now is the time to start looking for your home, contact us and we’ll be glad to help you.
If you are currently on the fence about whether to buy that next home, would a $7500 gift from the government be enough incentive, when combined with the great prices and interest rates prevalent in today’s market?
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Update: On February 17, 2009, President Obama signed into law a new stimulus plan that included an $8,000 first-time homebuyer tax credit. This new credit is for purchases in 2009 through November 30, 2009. Click here to learn more about the new $8,000 first-time homebuyer tax credit.
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