Q: My wife and I would like to purchase our first home. Could you please explain how the new $8,000 federal tax credit for first-time buyers works? We have talked to a mortgage broker, two bankers and even someone from the Internal Revenue Service, but none of them could provide the information in “plain English.”
A: Several readers have been asking for details about the recently approved program, so I am devoting this entire column to explaining how it operates.
The new credit was recently approved by Congress and signed into law by President Obama as part of the government’s efforts to bolster the housing market and stimulate the economy. Credit is available to first-time buyers who purchase a home between Jan. 1, 2009, and Dec. 1, 2009.
Congress defines the term “first-time buyer” loosely: To qualify, the purchaser or a spouse may not have owned a personal residence in the three years prior to their 2009 purchase. That’s particularly good news for people who lost their home to foreclosure or sold it when the housing market started to soften a few years ago but now want to purchase a property at today’s lower prices.
Q: What kinds of properties qualify?
A: It’s available to buyers of primary residences, be it a single-family home, a townhome, a condominium or a co-op. It’s not available to buyers of vacation homes or rental properties.
Q: Is $8,000 the maximum credit I can get?
A: Yes, $8,000 is the most you can get. You even might qualify for less than that amount, because eligibility is based on two factors: the price of the home and your income.
The credit is equal to 10 percent of the home’s selling price, so you would receive less if the price you pay is below $80,000.
Q: Does the credit have to be repaid?
A: No, the credit does not have to be repaid — provided you live in the house for at least three years. If you sell before then, the credit must be paid back from the resale proceeds.
Remember that a tax credit is much more valuable than a tax deduction. That’s because a deduction only saves you an amount equal to your tax bracket: If you have $8,000 in deductions (write-offs) and are in the 25 percent bracket, you’ll save only $2,000 on your next tax bill.