21 February 2009

Enhanced tax credit provides big incentive to home buyers!

Enhanced tax credit provides big incentive to home buyers

President's Message

Chris Sloan

President Barack Obama made headlines this week as he signed into law a $787 billion stimulus bill that aims to prop up the economy by cutting taxes, creating jobs and investing in the nation's infrastructure. While these particular components have received much of the media attention surrounding the legislation, the bill also contains several lesser-known housing stimulus provisions that will be of particular interest to home buyers. Below is a discussion of some of the measures that would bring significant benefits to home buyers this year:

$8,000 Tax Credit

Perhaps the legislation's biggest benefit to home buyers is a tax credit equal to 10 percent of the home's purchase price, up to a maximum of $8,000. Although similar to a $7,500 credit that was enacted in 2008, this year's tax credit is significantly improved. Unlike the original $7,500 tax credit, this new credit goes up to $8,000 and does not have to be repaid, making it a true tax credit rather than a long-term, interest-free loan. Keep in mind, however, that the home has to be your principal residence for three years if you want to avoid recapture.

Another benefit is the fact that the credit is refundable, meaning you can claim the credit to reduce your tax burden dollar for dollar and have any remaining amount refunded to you. For example, if someone who qualified for the full $8,000 credit owed $1,000 in taxes on April 15, 2010, he or she would receive a $7,000 rebate check.

There are, however, several requirements home buyers will have to meet in order to qualify for the tax credit. First, it is only available to first-time home buyers or those who haven't owned a primary residence in the past three years. If you haven't owned but your spouse has in the past three years, you won't qualify for the credit either.

The second limitation deals with income levels. To be eligible for the tax credit, an individual's income cannot exceed $75,000 for the full credit and $90,000 for a partial credit. For those filing jointly, incomes cannot be greater than $150,000 for the full credit and $170,000 for a partial credit. Finally, potential buyers should know that the credit is only available for home purchases made on or after Jan. 1, 2009, and before Dec. 1, 2009, as the purpose of the credit is to stimulate home buying.

Even though not everyone will qualify for the tax credit, there will be indirect benefits for both homeowners and the overall economy. The National Association of Realtors estimates there will be an additional 300,000 home sales from first-time buyers because of the credit. According to Lawrence Yun, chief economist of the National Association of Realtors, the tax credit will help reduce inventory levels, which will help stabilize home prices in many parts of the country.

Increased Loan Limits

                Of course in order for buyers to make a home purchase, funding must be available. While FHA and conventional loans are readily available and offer low interest rates, there are limits to how much you can borrow using these programs. Under the recently signed stimulus bill, these limits have been expanded, which will provide greater access to affordable mortgage funding, especially for buyers looking to purchase a higher-priced home.

                In Utah, the limits - which are determined by an area's median home price - vary depending on the county in which you live. In Salt Lake, Summit and Tooele counties, both the conventional and FHA limits have been increased from $600,300 to $729,750, according to an estimate from the National Association of Realtors. In all other counties (except Wasatch where the new limits are estimated to be $431,250) the previous conventional loan limit will remain the same at $417,000, with the FHA limits varying.

Benefits for Energy Efficiency

                Another component of the bill puts more money in the pockets of would-be remodelers. Along with the savings that come from a more efficient home, the stimulus bill is providing a greater tax incentive for homeowners who make energy-efficient updates. The bill triples the amount of an existing tax credit by providing a credit worth 30 percent of the cost of each improvement (up from 10 percent), with a lifetime cap of $1,500.

      Congressional estimates indicate that the new rules for the tax incentive will increase aggregate remodeling activity by more than $6 billion. Details on qualifying improvements for the tax credit will soon be available on the IRS Web site, www.irs.gov.

                In addition to the home buyer tax credit, increased loan limits and remodeling incentives, the bill takes other steps to help the housing market. To learn more about the housing-released provisions of the stimulus bill, visit www.Realtor.org or www.FederalHousingTaxCredit.com. To learn more about the home-buying opportunities in your area, contact your local Realtor.

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