Thanks in advance to Karen Monroe, a great lender over at Colorado Capitol for more breakdown on the tax credit for home buyers in this market. Karne can be reached at-
www.applywithkaren.com
www.coloradocapitalbank.com
Tax Credit for Homebuyers
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 tax credit starts phasing out for couples with incomes above
$150,000 and single filers with incomes above $75,000. Buyers will have
to repay the credit if they sell their homes within three years.
Tax Credit Versus Tax Deduction
It's important to remember that the $8,000 tax credit is just that... a
tax credit. 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!
Phaseout Examples
According to the plan, the tax credit starts phasing out for couples
with incomes above $150,000 and single filers with incomes above
$75,000.
To break down what this phaseout means to homebuyers who are over those
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 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.
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.
Higher Loan Amounts
More good news - there is an extension on the additional tier of
conforming loan amounts which had been first established in 2008. This
tier of home loans are those greater than $417,000, and with a maximum
that depends on the area, but is not greater than $729,750. These loans
will again be eligible for rates that are slightly higher than
conforming loan rates, but less expensive than the standard "jumbo" loan
rates.
Additional Housing-Related Provisions
Tax Incentives to Spur Energy Savings and Green Jobs - This provision is
designed to help promote energy-efficient investments in homes by
extending and expanding tax credits through 2010 for purchases such as
new furnaces, energy-efficient windows and doors, or insulation.
Landmark Energy Savings - This provision provides $5 Billion for energy
efficient improvements for more than one million modest-income homes
through weatherization. According to some estimates, this can help
modest-income families save an average of $350 a year on heating and air
conditioning bills.
Repairing Public Housing and Making Key Energy Efficiency Retrofits To
HUD-Assisted Housing-This provision provides a total of $6.3 Billion for
increasing energy efficiency in federally supported housing
programs.Specifically, it establishes a new program to upgrade
HUD-sponsored low-income housing (for elderly, disabled, and Section 8)
to increase energy efficiency, including new insulation, windows, and
frames.
Expanding Housing Assistance-This provision increases support for
several critical housing programs. It includes $2 Billion for the
Neighborhood Stabilization Program to help communities purchase and
rehabilitate foreclosed, vacant properties.
More Help for Homeowners in the Future
Another thing to keep an eye on in the coming weeks is President Obama's
plan to help struggling borrowers before they are faced with a default
on their mortgage.
According to reports, the Obama administration is discussing plans to
help borrowers who are struggling to stay afloat, but who have not yet
fallen behind on their payments. At this point, details are scarce;
however, reports indicate that President Obama is looking to spend
approximately $50 Billion to directly help homeowners before they face
foreclosure and financial disaster.
While this is good news for individual homeowners, it will likely be
good for the housing industry as a whole. That's because, assisting
struggling borrowers before they default should help stop the wave of
foreclosures, which are estimated to top two million this year. That, in
turn, will help stabilize home prices.