What do you mean “Free Money”?
by Kelly Krauth
With all of the new stimulus package rebates, refunds and hoopla, it amazes me of how many people do not really know about the money that is now available to them through the First-Time Homebuyer’s Credit. I recently participated in a workshop and asked this very question to a group of people. 1 of 30 people raised their hand when I asked this very question. This made me realize that I needed to get this news out to my local community. Now before I lose you at “first time home buyer”, did you know that a first time home buyer also means an individual who has not owned a principal residence in the previous three years?
Let me say this simply for everyone to understand. This is a gift. No catch and no gimmick. Anyone who as ever wanted to buy a new home now has the opportunity to receive a gift from Uncle Sam up to $8,000 for buying a new home before November 30th 2009.
Let me tell you another fact. Through our Governor Mr. Richardson and NMMFA, you can also borrow against your $8,000 as a down payment for a new home! This is an interest free loan available for 12 months until you repay the loan through your tax credit.
If this is not enough incentive to buy many of the gorgeous homes now available in our beautiful East Mountains than I do not know what else is; especially when we are now experiencing record-low interest rates. It is a buyers market and the point of this credit is to encourage home ownership. I urge you to contact your qualified mortgage broker or preferred MFA lender to ask about some of these programs.
Here are a few bullets regarding the program:Quick Summary of the First-Time Homebuyer CreditFor 2008: up to $7,500, the credit is paid back over 15 years. For 2009: up to $8,000, the credit does not need to be paid back. “First-time” buyer means an individual who has not owned a principal residence in previous three years. Dollar Amounts of the Homebuyer Tax CreditThe tax credit is worth 10% of the purchase price of the home. For 2008, the maximum credit is $7,500 ($3,750 for married couples filing separate returns). The credit is also limited to the same $7,500 maximum for unmarried persons who purchase a residence together. For 2009, the maximum credit is $8,000 (or $4,000 for married couples filing separately). Qualifying as a First-Time HomebuyerFor the purpose of this tax credit, a first-time homebuyer is defined as someone who has not owned a primary residence in the three-year period ending on the date of purchasing the home. Limited Time Period for Purchasing a ResidenceThe credit has a very limited life-span. Individuals will need to purchase a residence after April 9, 2008, and before December 1, 2009. What’s a Primary ResidenceA primary residence is a residence in which an individual lives most of the time. A primary residence can be a house, condominium, co-operative apartment, houseboat, or mobile home. Because the tax credit is for people who purchase their primary residence, individuals may qualify for the tax credit even if they own a vacation home or rental property as long as those properties were not their primary residence for at least three years preceding the purchase of their new home. Income Phase-out RangeThe credit is phased out for individuals with modified adjusted gross income between $75,000 and $95,000. For married couples filing a joint return, the phase out range is $150,000 to $170,000. Modified AGI for the First-Time Homebuyer CreditTo determine if the tax credit is reduced or eliminated by the income phase-out range, individuals will need to determine their modified adjusted gross income. For the purposes of determining income eligibility for this credit, adjusted gross income is modified by adding back the following excluded income: · foreign earned income; · income from Guam, American Samoa, or the Northern Mariana Islands; · income from Puerto Rico.When to Claim the CreditThe credit is fully refundable, meaning taxpayers will be able to obtain an additional federal tax refund of up to $7,500 even if they have no other tax liabilities. Taxpayers will be able to claim the credit on their 2008 tax return for homes purchased in 2008. For homes purchased in 2009, the IRS will allow the purchasers to file an amended 2008 return to claim the credit. For the 2009 tax credit to show up on the 2008 return, taxpayers will need to elect to treat the 2009 home purchase as if it were made on December 31, 2008. Guidance released by the IRS provides that taxpayers making this election are eligible for the higher $8,000 tax credit amount and do not need to repay the credit if they take their 2009 credit on their 2008 tax return. Repaying the First-Time Homebuyer CreditThe credit needs to be repaid in equal installments over 15 years. Unlike any other tax credit, the first-time homebuyer credit must be repaid over 15 years. This pay-back feature applies only to homes purchased in 2008. The credit will works like this: you’ll get your refund when you file the tax return. Then the credit will be repaid as an additional tax on your tax return for the next fifteen years, starting with the 2010 tax return. For the maximum $7,500 credit, this works out to annual repayments of $500 per year. As CCH notes in their tax briefing, this tax credit amounts to an interest-free 15-year loan for first-time homebuyers. The credit will also need to be repaid in full if the taxpayer sells the house within the fifteen-year repayment period. The credit also needs to be repaid in full if the property is no longer the taxpayer’s primary residence. The credit will be disallowed if a taxpayer sells the house before the end of the same year in which the house was purchased. Tax Form to Claim the First-Time Homebuyer CreditForm 5405 (pdf, 3 pages including instructions) ?