What You Should Know About the First Time Home Buyer Tax Credit

NOVEMBER 9, 2009   HOT OFF THE PRESS!  CONGRESS EXTENDS & EXPANDS THE FIRST TIME HOMEBUYER TAX CREDIT TO INCLUDE CURRENT HOME OWNERS!  PLEASE READ BELOW SUMMARY OF CHANGES.

Great news about the First Time Homebuyer Tax Credit... it’s no longer just for First Time Homebuyers!

Here is a brief overview of the new Homebuyers Tax Credit - and its benefits - based on the new bill just passed.

Tax Credit for First-Time Homebuyers
FTHBs (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000. Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Tax Credit for Current Homeowners
The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years. Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?
In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010. Those in the military do have some special extensions on the timelines available.

What’s So Great About a "Tax Credit"?
The benefit of a tax credit is that it’s a dollar-for-dollar benefit, rather than a "tax deduction", or reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a first-time homebuyer who qualified for the entire benefit were to owe $8,000 in income taxes and would qualify for a tax credit of $8,000, she 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 or no income tax liability. For example, if a first-time homebuyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a check for the remaining $4,000!

Higher Income Caps
The amount of income someone can earn and qualify for the full amount of the credit has been increased. Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible. Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

Maximum Purchase Price
Qualifying buyers may purchase a property with a maximum sales price of $800,000.

I have a comprehensive packet of information about the First Time Homebuyer tax credit, including the IRS Form 5405 for claiming the credit on your tax return. If you email me with your full mailing address I will be happy to send it out to you. Additionally you can visit www.YourIllinoisHome.com to learn more about the tax credit and state and federal loan programs.

TO VIEW 08 VS 09 TAX CREDIT CHART CLICK HERE
TO VIEW CURRENT 09 VS EXTENDED 2010 TAX CREDIT CHART CLICK HERE

Illinois Home Start: New Loan to Help First Time Illinois Homebuyers
(source: IHDA)
First-time homebuyers in Illinois now have an opportunity to take advantage of current low-interest rates and decreasing home prices under an innovative new program offered by the Illinois Housing Development Authority (IHDA). The Illinois Home Start Loan Program allows hundreds of residents to achieve the dream of homeownership through a new 30-year fixed rate loan, and an advance loan on the federal tax credit created by the American Recovery and Reinvestment Act of 2009.

Home Start offers a 30-year fixed rate loan insured by the Federal Housing Administration for first-time homebuyers, and gives them the option to use a second loan for down payment assistance. The second loan provides families and individuals buying their first homes an advance loan on the $8,000 federal tax credit, which they can repay once they receive the credit. Click here to read more.

If you are concerned about the downpayment, the Federal Housing Authority (FHA) has a program that allows a First Time Home Buyer to put down as little as 3.5%. The FHA mortgage is also easier to obtain than conventional loans as it has less stringent qualifications and allows a lower credit score. FHA loans also allow for a downpayment "gift", as well as a seller contribution toward downpayment and/or closing costs of up to 6% of the cost of the home. As you can see there are many benefits to the FHA loan program. I can provide additional information about FHA loans and lender referrals upon request.

IMPORTANT NOTE: In order to claim the $8000 OR $6500 2010 tax credit, your loan must CLOSE AND FUND by JUNE 30, 2010. There are numerous issues in the process that can cause undue delay in processing the loan, such as: credit cleanup, "telephone tag", lack of inventory in your price range, home inspections, verifying assets, "gift" issues, appraisals, vacations, holidays, etc. Make sure to give yourself at least 60 days from the time your home is under contract until the closing date to make sure you have enough time for processing your loan.