Frequently Asked Questions About the $8,000. Federal Tax Credit Recently Approved by Congress
Q:
A: How much is the tax credit?
The tax credit would be $8,000 or 10% of the purchase price, whichever is less.
Q:
A: Who is eligible?
Similar to the $7,500 tax credit included in the Housing and Economic Recovery Act of 2008, the $8,000 tax credit (included in the 2009 economic stimulus plan) is available for the purchase of the primary residence by first-time homebuyers.
Q:
A: If this is for first-time homebuyers, how do I know if I am eligible for the tax credit?
According to the IRS, any taxpayer who has not owned a home during the 3 years prior to the date of purchase can qualify for the credit.
Q:
A: Do I have to repay the $8,000.?
No. Unlike the previous $7,500 tax credit, the $8,000. does not have to be repaid UNLESS, the home is sold within three years of purchase; at that time, the credit will be reversed.
Q:
A: Are there any income limitations on the tax credit?
Yes. The tax credit is strictly for individuals with adjusted gross income of under $75,000 or $150,000 for joint filers.
Tax Credit vs. Tax Deduction
This is a tax credit, not a tax deduction, meaning its a dollar-for-dollar decrease to your tax liability. Also, the tax credit is refundable, meaning you can receive the full value of the credit even if you do not have an $8,000 tax liability.
Phase-Out
The tax credit phases-out for individuals making $75,000 or over modified adjusted gross income (MAGI), and couples making $150,000 or over MAGI. Below are examples of how the phase-out will apply to the two different scenarios.
Individual Making $75,000 or Over
Assume that an individual homebuyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.
Couple Making $150,000 or Over
Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phaseout to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.
Who Cannot Take the Tax Credit
If any of the following apply, you cannot take the tax credit:
1. Individuals making $95,000 or over MAGI, and couples making $170,000 or over MAGI; meaning you receive no tax credit if your income is this much or more a year.
2. You buy your home from a close relative, including: parent, sibling, spouse, grandparent, child, etc.
3. You sell your home within the first three years of purchasing it. If this occurs, the tax credit must be repaid.
4. You are a non-resident alien
First-time Homebuyer Definition
A first-time homebuyer is defined as someone who has not owned a home within the last three years. If married filing jointly, both spouses must meet the first-time homebuyer definition to take the tax credit.
When Can the Tax Credit be Claimed?
The $8,000 tax credit can be claimed for your 2008 tax year (filed by April 15th 2009), 2008 amended return or 2009 tax year.
Homes That Qualify
The tax credit is applicable to any home that will be used as a principle residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principle residence also qualify. For new construction, the purchase date is considered the day you occupy the home; therefore you must move-in by November 30th 2009 to qualify for the tax credit.
Also, homes in the District of Columbia qualify for the tax credit.
How About Those Who Purchased Homes in 2008?
Homes purchased in 2008 are subject to the $7,500 repayable tax credit.
President Obama unveiled his plan to help stabilize the housing market and keep millions of borrowers in their homes.The Homeowner Affordability and Stability Plan includes two initiatives to help struggling homeowners. One is a refinancing program for homeowners with less than 20% equity in their homes, or who owe more than their home is worth. The second program attempts to lower monthly payments for homeowners at risk of losing their home. In addition, the plan includes a third initiative to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac.
Many of the plan’s details are still being worked out and will not be announced until March 4, here is an overview of the plan’s main components.
Refinancing Initiative
Under current rules, those families who own less than 20% equity in their homes have a difficult time refinancing and taking advantage of the historically low interest rates. Therefore, the refinancing initiative in the new plan provides refinancing help for homeowners with less than 20% equity in their homes or who owe more than their home is worth. This initiative is open to homeowners who have conforming loans which are guaranteed by Fannie Mae and Freddie Mac, and who owe up to 5% more than their home is worth.
According to the plan, “credit-worthy” or “responsible” homeowners can refinance their mortgage into a 30- or 15-year, fixed-rate loan based on current market rates. The refinanced loan, however, cannot include prepayment penalties or balloon payments. For many families, this low-cost refinancing may help reduce their mortgage payments by up to thousands of dollars per year.
As with the rest of the plan, details about this initiative will be released at a future date—including what, if any, credit score requirements will be included.
Stability Initiative
This initiative aims at providing help to individual families as well as entire neighborhoods by helpingreduce foreclosures and stabilize home prices. It is intended to help homeowners who are struggling to afford their mortgage payments, but cannot sell their homes because prices have fallen significantly.
The goal of this initiative is simple: “reduce the amount homeowners owe per month to sustainable levels.” To accomplish this, lenders are encouraged to lower homeowners' payments to 31 percent of their income by lowering their interest rate to as low as 2% or by extending the terms of the loan. In addition, lenders can also lower the principal owed by the borrower, with Treasury sharing in the costs.
Homeowners who are current on their mortgages but are struggling can still apply for this program. As such, this is one of the few programs designed to help homeowners who may face delinquency soon, but are current at the moment.
Since the focus of this initiative is on helping families and neighborhoods, investment properties do not qualify. This initiative also includes a number of additional elements and incentives that benefit homeowners and lenders alike, including:
Incentives to Help Borrowers Stay Current: To provide an extra incentive for borrowers to keep paying on time, the initiative will provide a monthly balance reduction payment that goes straight towards reducing the principal balance of the mortgage loan. As long as a borrower stays current on his or her loan, he or she can get up to $1,000 each year for five years.
Reaching Borrowers Early: To keep lenders focused on reaching borrowers who are trying their best to stay current on their mortgages, an incentive payment of $500 will be paid to servicers, and an incentive payment of $1,500 will be paid to mortgage holders, if they modify at-risk loans before the borrower falls behind.
Supporting Low Mortgage Rates
As part of the Homeowner Affordability and Stability Plan, the Treasury Department is increasing its funding commitment to Fannie Mae and Freddie Mac to ensure the strength and security of the mortgage market and to help maintain mortgage affordability. This portion of the plan will use using funds already authorized in 2008 by Congress for this purpose.
The increased funding will enable Fannie Mae and Freddie Mac to carry out ambitious efforts to ensure mortgage affordability for responsible homeowners, and provide forward-looking confidence in the mortgage market.
Again, the government plans to unveil the final details of the plan on March 4, 2009. For now, you can download a sheet of common Questions and Answers produced by the government at: www.
treas.gov/initiatives/eesa/homeowner-affordability-plan/ConsumerQA.pdfFREE Home Buyer Tax Credit Webinar – April 3 at Noon
The countdown to December 1, 2009 has begun. Learn how to take advantage of the tax credit during a free Get the Real StorySM webinar on Friday, April 3, 2009 at noon. Register for the webinar on Friday by visiting http://www.
njar.com/rs_register.php. The website address for participating will be e-mailed to you in advance of the event. Please note, space for the live event is limited.
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