Final score: $8,000 for homebuyers
First-time purchasers get a tax credit windfall if they buy before December 2009
NEW YORK (CNNmoney.com) – There’s a nice windfall for some homebuyers in the economic stimulus bill that President Obama signed on last Tuesday. First-time buyers can claim a credit worth $8,000- or 10% of the home’s value, whichever is less- on their 2008 or 2009 taxes.
A big plus is the credit is refundable, meaning tax filers see a refund of the full $8,000 even if their total tax bill- the amount of withholding they paid during the year plus anything extra they had to puny up when they filed their returns- was less than that amount. But there has been a lot of confusion over this provision. Adam Billings of Knoxville, Tenn. wrote to CNNMoney.com asking:
“I will qualify as a first-time home buyer, and I am currently set to get a small tax refund for 2008. Does that mean if I purchased now that I would get an extra $8,000 added on top of my current refund?”
The short answer? Yes. Billings would get back the $8,000 plus what he’d overpaid. The long answer? It depends. Here are three scenarios:
Scenario 1: Your Final tax liability is normally $6,000. You’ve had taxes withheld from every paycheck and at the end of the year you’ve paid Uncle Sam $6,000. Since you’ve already paid him all you owe you get the entire $8,000 tax credit as a refund check.
Scenario 2: Your final tax liability is $6,000, but you’ve overpaid by $1,000 through your payroll withholding. Normally you would get a $1,000 refund check. In this scenario, you get $9,000, the $8,000 credit plus the $1,000 you overpaid.
Scenario 3: Your final tax liability is $6,000 buy you’ve underpaid through your payroll withholding by $1,000. Normally you would have to write theirs a $1,000 check. This time the first $1,000 of the tax credit pays you bill, and you get the remaining $7,000 as a refund.
To qualify for the credit, the purchase must be made between Jan1, 2009 and Nov. 30, 2009. Buyers may not have owned a home for the past 3 years to qualify as “first time” buyers. They must also line in the house for at least three years, or they will be obligated to pay back the credit.
Additionally, there are income restrictions: To qualify, buyers must make less than $75,000 for single or $150,000 for couples.
Applying for the credit will be easy- or at least as easy as doing you income taxes. Just claim it on your return. No other forms or papers have to be filed. Taxpayers who have already completed their returns can file amended returns for 2008 to claim the credit.