First-time Homebuyers Tax Credit
Information has been circulating recently regarding a tax credit for first-time homebuyers
. While this topic has been discussed through various news mediums, people are still in the dark. To clarity what this is and how it works, the information in this article will help.Most people are confused about who would quality for this tax credit, believing it is offered to every homebuyer. In truth, the credit is only for first-time buyers, which is also a little confusion. By definition, the government states that a first-time homebuyer is someone purchasing a first home but also someone buying a home who has not been a homeowner in the past three years.
Additionally, some people believe the tax credit is simply free money from the government but that only happens in fairytales and as the saying goes, "if it seems too good to be true, it probably is." This tax credit is a government loan used specifically for paying taxes for people considered first-time buyers. Since most buyers in this category have higher expenses associated with the purchase, this could help. The best way to view the tax credit is as an incentive to encourage more people to invest in property, thereby boosting the real estate market.
The first-time buyer tax credit is designed so $7,500 would be repaid with income tax at a rate of $500 a year until paid. While the money would be paid back, the loan is stretched out over years, which gives homebuyers the opportunity to make affordable payments. Another benefit of this tax credit is that no interest is applied to the loan, meaning you borrow $7,500 and you repay $7,500.
Understanding the concept of the first-time homebuyer tax credit allows people to weigh pros and cons of using the incentive or even advantages of making payments or paying the loan off in full. The $7,500 could be used for home repairs and updates, such as flooring, appliances, countertops, bathroom fixtures, electrical or plumbing needs, etc. Therefore, first-time buyers looking at homes in disrepair would likely benefit by using this incentive.
For qualification, if you expect to pay taxes in 2009 for 2008, a home purchased in 2008 qualifies for the $7,500 credit. Interestingly, this incentive is based on income tax, not property tax. Therefore, income tax filed in 2008 with a tax liability of $10,000, of which your employer holds out of your pay check, the credit would go towards the $10,000, reducing owed income tax to $3,500 or, the employer could withhold $7,500 from your wages and use the full incentive for a break-even situation.
To ensure you make the right decision, you should talk to your tax advisor to see if you qualify and if this would be the right move. While the Internet also provides a ton of information, working with the tax advisor is the better option. Regardless, the goal is to see how your income taxes for the current year would be affected.
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