Stimulus for First-Time Homebuyers

The much-discussed tax credit for homebuyers will be included in the stimulus package that President Obama is signing today. The final form of the credit is this: First-time buyers can claim a credit worth $8,000 (or 10% of the home’s value, whichever is less) on their 2008 or 2009 taxes. To qualify for the credit, the purchase must be made between Jan. 1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past three years to qualify as a “first time” buyer. They must also live in the house for at least three years, or they will be obligated to pay back the credit. There are income restrictions. Buyers must make less than $75,000 for singles or $150,000 for couples. (Higher-income buyers may receive a partial credit.)

A big plus is that the credit is refundable, meaning tax filers see a refund of the full $8,000 even if their total tax bill is less than that amount. This provision is somewhat confusing, and it would be a good idea to consult your accountant on this point. If you’ve already filed your return for 2008, you can re-file to claim the credit.

The housing industry is pleased with the result because the stimulus plan improves on the current $7,500 tax credit, which was passed in July. The credit can be used for any purpose - unexpected repairs, moving expenses, appliances, etc.; and these purchases will in turn help to further stimulate the economy. With interest rates and home prices still at all-time lows, this tax credit is just another reason to think seriously about making the decision to buy a home.

Please feel free to comment on this post, or send me an e-mail if you would like a complete list of FAQs about the tax credit.