First-Time Homebuyer to Receive $8,000 Tax Credit

MORTGAGE CRISIS OR OPPORTUNITY SERIES?

2008 and 2009 may seem like the most challenging years we have faced in quite some time. We are involved in several wars, the economy is in a very fragile state and there are pirates on our seas again. Pirates. . . Really?? And we are feeling the stresses right here in Portland. Our unemployment rate alone is the highest it has been in decades.

It is in times like these, however, when we show our true grit and fortitude. And this time we have help!

In March, President Obama signed the latest economic stimulus package bill, setting into place many new programs designed to help not only the mega-banks, the insurance companies, wall street or, closer to home, those who are at risk of losing their homes, but now, everyone.

In the coming weeks I will post a series of articles with information about how the new stimulus package has, and continues to create new programs designed to put people in a more sound financial situation. Many of the articles will also focus on how many of these opportunities can only exist in the current economic situation and which are specific to Portland.

I write the following article with mortgage banking expertise not as a tax expert. It is always good to consult your tax accountant when making decisions about your taxes.

FIRST-TIME HOMEBUYER $8,000 TAX CREDIT

One of the most concrete benefits of the economic stimulus package is the $8,000 tax credit for first-time home buyers. This tax credit is not the same tax deduction of $7,500 that was previously offered. That was more of a tax loan which had to be paid back over time. This new tax credit is an actual dollar-for-dollar credit on your 2009 taxes.

The $8,000 isn’t for every home purchased. In reality, the tax credit is either 10% of the homes value or $8,000, which ever is less. In cold hard numbers, this means that you will receive the $8,000 if your new home is worth $80,000 or more.

DEDUCTION VS. CREDIT
Here’s how it works. A normal tax deduction reduces the amount income that is taxable. For example, if you were to make $30,000 without any deductions and your were in the 15% tax bracket, your tax liability would be $4,400 (30,000 x 15%). If you were to make $30,000 and you had deductions in the amount of $8,000 and you were in the 15% tax bracket, your taxable income would then be $22,000 ($30,000 - $22,00) and your tax liability would be $3,300 (22,000 x 15%). Only a dollar savings of $1,100.

With a tax credit, however, if you earned $30,000 without any deductions and you were in the 15% tax bracket, your tax liability would still be $4,400 ($30,000 x 15%), but the IRS would cover that $4,400 and you would receive a check from the IRS in the amount of $3,600 ($8,000 - $4,400).

The best part, you don’t have to pay this back!

WHO QUALIFIES?

1. First-time home buyers: The definition of a first-time homebuyer is someone who has not owned a home in the last three years. If you have not had ownership a home since August of 2006, then you could benefit from this program if you purchase your new home in September of 2009. Unfortunately, if you are married and you technically haven’t owned a house in the last three years but your spouse has, then you will not qualify for this program.

2. Income: There are income restrictions on this program. If you are single, you must make less than $75,000. If you are married, you must make less than $150,000.


3. Occupancy: The home you purchase must be occupied by you, the owner, and you must commit to living in the home for at least 3 years. If you purchase the home and vacate it or sell it, then you will have to pay part of the tax credit back.

4. Timeline: For your new home to qualify for this program it must have been purchased between January 1, 2009 and December 1, 2009.

While this is not a solution to all of our economic woes, it is certainly a good piece to the puzzle. According to Lawrence Yun, chief economist for the National Association of Realtors, the $8,000 tax credit will bring an estimated additional 300,000 new homebuyers into the market.

This could also benefit current home owners who are looking to use their current home as financial leverage to purchase a larger home but can’t because they cannot sell their current home. If there are 300,000 new homebuyers looking for properties, this could help create a domino effect that could begin to turn around mortgage crisis.

If you would like more information on this program or need help with your Portland mortgage or refinance, please feel free to contact me.

Wade Willis
Loan Officer
Sound Mortgage
503.819.8174 Cell
971.327.9750 Office
503.715.5700 Fax
wadewillis@soundmtg.com