March 3rd, 2009 3:09 PM by
Previously, the Hope for Homeowners Program of the U.S. Foreclosure Prevention Act of 2008 offered a $7,500 tax credit to the purchaser ($3,750 for a single person) of a foreclosure home. If you will owe $10,000 in taxes for 2008, and you and your spouse purchased a home as first-time home buyers (meaning you hadn't purchased a home in the last three years), you would owe only $2,500 in federal taxes.
But you would be required to pay back the credit over time by adding $500 to your federal tax bill each year until it is exhausted. If you sold the house before you finish paying off the credit and you did not realize any appreciation, you are not required to pay the remaining balance.
The new first-time homebuyer tax credit that is part of the 2009 American Recovery and Reinvestment Act is refundable, meaning you can get cash (up to $8,000) for buying a new home. It is very similar to an auto rebate offered by auto dealerships to entice new car purchases. Think of it as "cash back."
Here's how it works. If you owe $2,000 on your federal taxes and you qualify for the first-time homebuyers tax credit, you will receive a tax refund of $6,000 -- a check you can put in your bank account.
Who qualifies? The qualifications for the program have changed. Under this new program, the purchaser cannot have owned a home in the last three years (not merely not purchased one in the past three years as was required for the previous tax credit).
The rebate is also restricted by income. (There were no such income restrictions with the previous tax credit.) It phases out for individuals with an adjusted gross income of $75,000 or above or with a combined gross income of $150,000 or above for married couples.
The tax credit is calculated based on the purchase price of the house. (There was no calculation for the previous $7,500 tax credit. It was a flat amount.) The new tax credit is for up to 10 percent of the purchase price, with a maximum of $8,000. Two qualified first-time home buyers of a $150,000 home and an $80,000 home would both receive an $8,000 tax credit.
The check can be in the mail a week or two after you purchase a home this year. This new tax credit allows you to purchase a home this year and include it on your 2008 tax return. Even if you have already filed your 2008 taxes, you can amend the return and receive the refund shortly thereafter.
If you don't qualify as a first-time home buyer under this new tax refund, you still can purchase a foreclosure before the end of June 2009 and receive the $7,500 tax credit.
By Elaine Zimmermann, www.commercialappeal.com
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