TOP 5 IN REAL ESTATE NETWORK, April, 2009-(MCT)-First-time home buyers could save good money on their 2008 income taxes, maybe enough to buy furniture, but they must wade through confusing tax breaks.
The tax deals apply for first-time buyers who bought a house in 2008 or buy one this year before December 1.
For ’08 first-time buyers, only one type of credit could apply. Yet if you buy a home this year before December 1, you could use another break on the 2008 or 2009 return.
If you bought in 2008, know that the first-time buyer credit must be repaid. “It’s very much like a tax-free loan,” said Mark Luscombe, principal analyst for CCH in Riverwoods, Illinois.
The credit could apply if you bought the house after April 8, 2008, and before December 31, 2008. Vacation homes don’t qualify. A first-time home buyer is someone who has not owned a home within the last three years.
The credit amounts to 10% of the purchase price, up to a credit of $7,500 for either a single taxpayer or a married couple filing a joint return. The maximum credit is $3,750 for married persons filing separate returns.
If you claimed the $7,500 maximum on your 2008 federal return, you must begin repaying the credit on the 2010 return. Typically, $500 will be due each year through 2024. For a married couple filing a joint return, the credit begins to phase out at $150,000 of modified adjusted gross income and is eliminated at $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.
Some restrictions apply.
To add to the confusion and, yes, generate home sales, the American Recovery and Reinvestment Act of 2009 expanded the First-Time Homebuyer Credit. The new credit is worth up to $8,000. Even better, you do not have to repay this new credit if the house remains your main home for 36 months.
The first-time buyer could claim 10% of the purchase price up to $8,000 for either a single or married couple filing a joint return, or up to $4,000 for married individuals filing separately.
If a married couple filing a joint return bought a $50,000 home, the credit could be up to $5,000.
Again, the amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000, or $150,000 for joint filers.
The credit can be taken on either the 2008 or the 2009 return. If you take it on the 2008 return, you’d get that money back much more quickly. You could amend a 2008 return.
Or taxpayers who are buying a home soon can request a 6-month extension to October 15.
Luscombe said the new credit gives more incentive to buy before Decemer 1. He noted that a credit reduces tax liability dollar for dollar, and a refundable credit is payable whether you have a tax liability or not. So, an $8,000 first-time home buyer’s credit would produce an $8,000 tax benefit, either reducing taxes by $8,000 or reducing taxes to $0 and getting a refund check for the balance.
See revised Form 5405 at www.irs.gov.
© 2009, Detroit Free Press