Subhmitted by AMY DuBOSE
San Marcos Area Board of REALTORS®
In mid-February, President Obama signed The American Recovery & Reinvestment Act (ARRA), a $787 billion stimulus package. The act provides tax relief for middle-income families as well as programs focused on healthcare, education, infrastructure improvements, and other key areas.
The act also has a major provision designed to stimulate activity in the housing sector – a tax credit for first-time homebuyers who purchase a qualifying property between Jan. 1, 2009 and Dec. 1, 2009.
I’ve encountered a bit of confusion when discussing the act with my clients and friends, so I’d like to clarify some major points.
More than $500 difference
You may recall a similar-sounding, well-publicized program that was a part of the Housing and Economic Recovery Act of 2008. Under that act, the federal government offered first-time homebuyers up to a $7,500 tax credit to be repaid over 15 years.
Under the ARRA, the tax credit has been increased to $8,000, or 10 percent of the purchase price, whichever is less.
So what’s the big deal? Five hundred extra dollars? Well, that’s not all. The most significant difference is that under the 2009 act, there is no repayment or recapture clause, as long as you stay in the home as your primary residence for three years.
To put it another way, the $7,500 was an interest-free loan; the $8,000 is a grant.
Additionally, the 2009 program removes the restriction against residential purchases financed with state and local tax-exempt mortgage revenue bond programs, like the one offered by the Texas Department of Housing and Community Affairs.
A first time for everything
The IRS says you’re a first-time homebuyer if you (or your spouse) have not owned a home as a primary residence in the past three years. Interestingly, owning a non-primary residence does not disqualify you from taking advantage of the credit. For instance, if you own a beach house but your primary residence for the last three years has been an apartment, you are eligible for the first-time buyer credit.
Qualify using MAGIc
There are also income requirements based on your modified adjusted gross income (MAGI).
If you’re single and your MAGI is less than $75,000 per year, you qualify for the full value of the tax credit. The credit for individuals begins phasing out at $75,001 and is unavailable to those whose MAGI exceeds $95,000 per year.
Couples whose MAGI is less than $150,000 can take advantage of the full credit, with the phase-out beginning at $150,001 and ending at $170,000.
Not just you, the property, too
In addition to you qualifying, the property must be one of the following eligible property types: a single-family detached home, a duplex, an attached home like a townhouse or condominium, a manufactured home, or a houseboat.
On the clock
There are time parameters, as well. You must purchase the home between Jan 1. 2009 and Dec. 1, 2009 and use it as a principal residence.
More good news
There is no application for this credit – you don’t need to be approved. If you qualify for the credit, simply complete IRS form 5405 and claim the amount on Line 69 of your 1040.
The fact that the credit is refundable means that the homebuyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. In other words, if you qualify for the full $8,000 but owe $2,300 to the IRS, you’ll actually get a check in the amount of $5,700.
Also, if you qualify for the tax credit and buy a home in 2009, you can apply the tax credit against your 2008 tax return. If you think this may be to your advantage, I encourage you to consult a tax specialist before you file this April.
If you qualify, go for it
Unfortunately, the program is not going to help everyone. Some people may still have trouble coming up with a downpayment, others earn more than the program allows or live in areas of the country where the cost of living and lack of affordable housing simply make the provision unfeasible.
I am certain, though, that many Texans can benefit – homes are just more affordable, on average, here in Texas than they are nationwide.
If you’re on the fence about buying a home, this incentive could be just what you’ve been waiting for. If you want more information about how the housing provision of The American Recovery & Reinvestment Act may benefit you, it’s to your advantage to ask a Texas REALTOR®. I further recommend that you visit TexasRealEstate.com – the online source for helpful tips and information about real estate in the Lone Star State.Email | Print