If you're thinking about buying a home this year, you're in luck. The economic stimulus bill that President Obama signed into law this week contains a big tax break for home buyers who haven't owned a home in the previous three years.
Tax credit upped to $8,000
The 472-page American Recovery and Reinvestment Act of 2009 offers first-time home buyers a tax credit of up to $8,000 or 10 percent of the purchase price of the home, whichever is less. The tax credit isn't technically new, but is instead an updated version of the $7,500 first-time home buyer tax credit that was enacted last year.
The best news--in addition to the $500 increase in the tax credit--is that the requirement that the tax credit must be repaid has been eliminated for home buyers who purchase a home between Jan. 1, 2009, and Nov. 30, 2009, and occupy that home for at least three years. The original rules required full repayment of the credit in $500 annual installments over a 15-year period or when the home was sold.
Tax credit can be claimed this year
The new home buyer tax credit is subject to income limits. The amount is reduced for single home buyers who earn more than $75,000 and married couples who earn more than $150,000, and it's phased out completely for single and married buyers who earn more than $95,000 and $170,000, respectively.
The tax credit is refundable, which means you'll get back the full amount even if your total federal tax liability is less.
The tax credit is also easy to use: You just claim it on your 2008 or 2009 tax return. If you buy a home after you file your 2008 tax return, you can amend your return and still receive your refund this year.
Homeowners get many tax benefits
The federal tax code contains other advantages for homeowners as well. Mortgage interest, mortgage insurance premiums and property taxes may all be deductible on your income tax return, subject to certain restrictions and limitations in the tax code.
If you’re thinking of buying a home this year, you should consider how the tax credit could affect you. Before you make a decision, it’s a good idea to:
● Research how much you can afford to spend to buy a home. (The LendingTree home affordability calculator can help.)
● Check your credit report and credit score.
● Shop around for a home and mortgage that fit your needs.