One of the measures taken in the Obama administrations economic stimulus package was a tax credit for first-time home buyers equal to $8,000 or ten percent of the value of the home, whichever is less. The goal is to stimulate the real estate market by encouraging people to purchase new homes before December 1, 2009. This tax credit may be of particular interest to people considering buying a home, especially in markets where the real estate market has already bottomed out.
Although there was a tax credit passed by Congress in July 2008, it was really nothing more than an interest free loan because the credit needed to be repaid. The new tax credit does not need to be repaid; it does not act like a loan but rather functions like a grant.
Qualification as a first-time home buyer requires that the buyer has not owned a home for three years. This means that previous homeowners who sold their properties during the bubble may qualify as new home buyers under this stimulus scheme. It is also important to note that one restriction on this tax credit prevents the buyer from receiving it if they purchase a home from family: parents, grandparents, children, spouse or spouses family. Ownership of a rental property or vacation home that has not been used as a primary residence does not disqualify a buyer from being first-time for the purposes of this credit.
There are also income qualifications in this stimulus plan, as well. A new homebuyer must make less than $75,000 a year, for couples filing jointly the amount is $150,000. These income amounts will qualify a homebuyer for the full credit amounts available. If the yearly income is over these amounts there are still tax credits available but it will not be the full $8000 or 10%. Moreover, an individual with more than $95,000 yearly or couples filing jointly on more than $170,000 cannot claim this tax credit at all.
The IRS allows the buyer to file an amended return against their 2008 taxes, meaning they can receive their funds in less than 12 weeks.
The economic recession brought about the creation of this tax credit plan in order to help middle class families be able to purchase new homes. However, the tax credit will not keep anyone from making a poor choice in his or her home purchase. The wise homebuyer will always take a close look at the local real estate market and in particular the property they are considering to evaluate whether home prices have reached their lowest point or not. Once this information has been studied then the tax credit dollars could be the answer for those purchasing a home in these economic times.