First-time homebuyers who purchase homes from the start of the year until the end of November 2009 may be eligible for the lower of an $8,000 or 10% of the value of the home tax credit.  Remember a tax credit is very different than a tax deduction -- a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income. 

The benefit of a tax credit is that it's a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done.  So, if a homebuyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing.  Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability.  For example, if a homebuyer is liable for $4,000 in income tax, he can offset that $4,000 with half of the tax credit… and still receive a check for the remaining $4,000!  The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.  Additionally, buyers will have to repay the credit if they sell their homes within three years.

Phase-out Examples
To break down what this phase-out means to homebuyers who are over the income amounts, the National Association of Homebuilders (NAHB) offers the following examples:

Example 1: Assume that a married couple has a modified adjusted gross income of $160,000.  The applicable phase-out 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.

Example 2: 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.

Remember, these are general examples.  You should always consult your tax advisor for information relating to your specific circumstances.

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.

Click here for the revised first-time homebuyer tax credits and click here for frequently asked questions.  Here are a few recent articles relating to the stimulus package: Stimulus plan's $8,000 housing credit can be sweet in the right circumstances, New homebuyers to get $8,000 cash back.  Stay tuned for part 2...

To receive a FREE pre-approval, contact Carter Scott, (703) 725-9041 mobile, or Thad Wise, (703) 350-1733 mobile with Bank of America!