Tax credit For The First Time Home Buyer

Along with the current market situation that is highly in favor of buyers, the US government is also offering citizens First Time Home Buyer Tax Credit, as an incentive to boost the real estate market. You can now buy luxurious houses for just about half of what you would have had to pay in 2005, and the market is predictably witnessing a fair number of bidding wars to take advantage of the situation.

Government Incentive for the First Time Home Buyer

For the first time home buyer, the US government is offering a tax credit of $8000, which is refundable. This is available for home buyers who buy before Dec 1, 2009.

This is what the First Time Home Buyer Tax Credit specifications look like:

The home you buy should be the first home you have owned in 3 years.
You must necessarily close your purchase by the 1st of December, 2009.
The home you purchase must be your principal residence.
Income restrictions are at the rate of $75,000 (p.a) for a single person and $150,000(p.a) for a married couple.

What this means, for all intents and purposes, is that people who making under $75000 per year in taxable income or married couples making under $150,000 taxable income will get a 10% credit on the purchase rate of the home. The price is capped at $8000.

You do not have to wait till the end of 2009 to get the tax credit, because you can easily amend your returns for the year 2008, moving the credit to the 2008 taxes that you have filed.

If you are buying a house with a long term perspective in mind, now is the best time in the market where you can buy at low rates. The chances of making a profit are quite high.

As of now, the status on First Time Home Buyer Tax Credit, is that it expires on 1 Dec 2009. So if a property has not been locked down in escrow by the end of Sep 2009, there is a very high probability that you will miss the deadline of 1 Dec 2009, therefore making yourself ineligible for the tax credit. All relevant transactions must be completely done and dusted by 1 Dec 2009. If you assume that the tax credit will be applicable if the procedure is in any other status other than complete, then you assume wrong. It has to be completely closed by that date, or else you don't get the credit.

Proposed Extensions to the First Time Home Buyer Credit

In 10 June 2009 a bill was introduced to extend the First Time Home Buyer Tax Credit. The bill did not receive much attention then because people were apparently not too concerned about tax credit expiring soon. But now that the deadline looms near, a lot of renewed interest can be expected in the tax credit situation.

The new bill, H.R.2801, proposes these modifications on the current tax credit.
Extend the tax credit deadline from 1 Dec 2009 to 1 Jan 2011.
Remove requirements of being a first time home buyer; instead leave it open to all home buyers purchasing a residence.
Completely remove income restrictions.

The new act will be called Home Ownership Moves the Economy Act (HOME) of 2009. If the act is passed some competition at least will be relieved in the market place, because people may not feel the need to push for closing a deal by 1 Dec 2009 and they can plan their decisions more wisely.