Tax Advantages & Incentives for Home Ownership

Homeownership is good for the country and the government has always encouraged it through tax breaks. These are unique tax benefits that apply only to housing also help lower the cost of homeownership. Both mortgage interest and property taxes are deductible. Moreover, profits of up to $500,000 on the sale of a principal residence (or $250,000 for a single owner) are excluded from tax on capital gains.

Here is a simple tax savings calculator to see how much you can potentially save by owning a home.

First Time Homebuyers Tax Credit

New this year through the landmark economic stimulus legislation, Congress has provided an outstanding opportunity for first-time home buyers (and anyone who has not owned a home in the past three years) with enactment of an $8,000 tax credit for single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000. Partial credits of less than $8,000 are available for individual taxpayers with incomes up to $95,000 and for married taxpayers with incomes up to $170,000. But buyers have only a limited time to take advantage of this once-in-a-lifetime opportunity. Only homes purchased on or after January 1, 2009 and before December 1, 2009 are eligible for the tax credit.

The National Association of Home Builders has provided a video that explains the tax credit and can answer some of your frequently asked questions.

2009 First-Time Home Buyer Tax Credit FAQ Who is Eligible? The $8,000 tax credit is available for first-time home buyers only. The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. All U.S. citizens who file taxes are eligible to participate in the program. The credit can be used when buying either a one or two family property Payback Provisions The tax credit is a true credit. It does not have to be repaid. The only repayment requirement is if the home owner sold the home within three years after the purchase.

Income Limits

• Home buyers who file as single or head-of-household taxpayers can claim the full $8,000 credit if their modified adjusted gross income (MAGI) is less than $75,000.
• For married couples filing a joint return, the income limit doubles to $150,000.
• Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit.
• Married couples who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit.
• The credit is not available for single taxpayers whose MAGI is greater than $95,000 and married couples with a MAGI that exceeds $170,000.

Effective Dates for the Tax Credit

• First-time home buyers would receive an $8,000 tax credit for the purchase of any home on or after January 1, 2009 and before December 1, 2009. To qualify, you must actually close on the sale of the home during this period.
• Tax Credit is Refundable
• A refundable credit means that if you pay less than $8,000 in federal income taxes, then the government will write you a check for the difference.
• For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $3,000 payment from the government.
• If you are due to receive a $1,000 tax refund from the government, your refund would grow to $9,000 ($1,000 plus $8,000 from the home buyer tax credit).
• Buyers can take the tax credit on their 2008 or 2009 income tax return.

Types of Homes that Qualify for the Tax Credit

• All homes, whether single-family, townhomes or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a principal residence in the prior three years. This also includes newly-constructed homes.

For more information visit www.federalhousingtaxcredit.com

Other Tax Savings Opportunities

There are other opportunities available to home buyers through other government organizations. The USDA offers rural development home loans covering a wide area that may increase your ability to purchase a home. Information on this topic can be found at their website.

Your Realtor® may also be aware of other opportunities that exist in your local community. Be sure to discuss all tax savings opportunities with them.