First Time Home Buyer Tax Credit and your 2008 tax withholdings: Are you eligible?
This tax credit is limited to those with an adjusted gross income (AGI) of less than $95K and $170K (single and joint filer) and who buy a personal residence between April 9, 2008 and July 1 2009. The credit is disallowed if the property is no longer your principal residence before the close of the tax year. It is also disallowed if you are classified as a nonresident alien, or your financing is from tax-exempt mortgage revenue bonds. You must be a first time home buyer which is defined as having no ownership interest in a principal residence during the three prior years. You must be a US citizen or US resident alien.
How much and how will you receive the credit?
The maximum amount for any Home Buyer Tax Credit is $7,500 and it is a refundable credit (which means that you will get the credit even if you don’t owe taxes). If you owe $5,000 and your credit is $6,000 you will receive a check for $1,000. It phases out at $75K and $150K (single and joint filers). You will receive the credit when you file but if you qualify you may adjust your withholdings or estimate taxes to accommodate this credit.
What is the catch?
The biggest catch for Bay Area home owners is that most do not qualify. If you do qualify for many home purchases you often need to earn enough to cover a fairly large mortgage which will, in many cases, place you above the limits to claim some or all of this credit. In addition, this is not “free money.” It is a 15-year no interest loan that must be paid back at $500 per year.
What should you do?
First determine if you are likely to qualify this year or early next year. If you do qualify, then consult with your tax planner or accountant and adjust your withholdings or estimated taxes either this quarter or early next year.
For the original documents, check the links on our resource page: www.aikapa.com/links.htm
** Please note, this is a Financial Bites column provided for general use by our clients — always check with your tax planner or accountant **
Edi Alvarez, CFP®
BS, BEd, MS