The 15,000 Home Buying Tax Credit – What it is and isn’t
Since the senate agreed on a new bill which included a $15,000 tax credit for home buyers (not only first time home buyers, but all home buyers) there has been quite the mass confusion. So I’d like to clear it up with a few simple points to show what it is, and what it isn’t and a few of the major details:
Major details:
The tax credit would be available for people who buy houses starting the day the bill is signed. I realize many of you think this is “unfair”, but no matter what date is picked someone will think it’s unfair.
What it is not:
You will NOT get a check for $15,000
You canNOT use it for a down payment
Most people will NOT be able to take advantage of the full $15,000 (i’ll explain later)
This will NOT be in conjunction with the current $7,500 15 year interest free loan
If you close before the bill is passed, you will not qualify
Not every single house qualifies (I’ll elaborate on this when the bill actually is signed since this qualification could quite easily change)
What it is:
It is a tax credit
A credit that can be used to lower tax liability over 2 reporting years
How does it work: (slightly modified version from [1])
Billy and Sally, who have a single dependent and file jointly, buy a house for $200,000 and make $60,000 / year (slightly over the U.S. median family income). They take a standard deduction and claim three exemptions reducing their taxable income to roughly $37,100. Their total tax liability is roughly $3,775.
This means if nothing changed from 2009 and 2010 they would only utilize $7,550 of the credit and the rest would be forgone after the second reporting year.
But it’s not all lost because it does help some, just not the ones who make what is considered the median family income of $58,407 according to the U.S. Census Bureau. The people that can really start taking advantage of it are people that make about $65,000 and claim single, or married couples that make about $100,000 combined.
So just to reitterate the point, this maximum tax credit will be equal to your tax liability over the 2009 and 2010 reporting years, or $15,000 which ever is less.
How can you use it?
Now I hope you understand how it works, and you feel this credit is enough to intice you to buy here is how you can use it.
Once passed you can change your W-4 with your employeer(s) to withold less (by claiming more allowences). This will give you more money per check up front, and help you build your down payment, or buffer it more. You can get a rough estimate on your tax liability by using a W-4 witholding calculator. Just be aware if you don’t buy a house within the year after the bill passes you better still have that money to pay back the taxes not witheld and the penalties for not witholding enough.
If you have your down payment already and you’re going to buy right after the bill passes you can still change your W-4 allowences so you have more money per pay check and put that in the bank, or do the needed repairs (if you bought a fixer up’er). Again, just check to see what your possible tax liability will be using a W-4 Calculator.
note:If you change your W-4 keep an eye on how much of the credit is used in the first year, and change your W-4 accordingly in the second year to make sure you are witholding enough. After the second reporting year, make sure you recalculate your W-4 to what it is with your default excemptions.
What I suggest:
If none of this makes sense to you, work with a CPA/Accountant and have them help you out, as you could quite easily get yourself in a huge financial mess.
What you need to know:
What Does Tax Liability Mean?
The total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable event. Tax liability can be calculated by applying the appropriate tax rate to the taxable event’s tax base. Taxable events include, but are not limited to, annual income, the sale of an asset, a fiscal year-end or an inheritance. [1]
Comparison of the home buyer credit proposed by the House and the Senate[2]
HOMEBUYER CREDIT:
* House – $2.6 billion to repeal a requirement that a $7,500 first-time homebuyer tax credit be paid back over time for homes purchased from Jan. 1 to July 1, unless the home is sold within three years. The credit is phased out for couples making more than $150,000.
* Senate – Doubles the credit to $15,000 for homes purchased for a year after the bill takes effect, increasing the cost to $35.5 billion.
References:
[1]http://www.stupidcents.com
[2]http://www.investopedia.com/terms/t/taxliability.asp
[3]http://hosted.ap.org/dynamic/stories/C/CONGRESS_STIMULUS_HIGHLIGHTS?SITE=CARIE&SECTION=HOME&TEMPLATE=DEFAULT
PS: I know i’ve missed something so if I have leave a comment and I’ll be sure to add.
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Whoops, one too many zeros!
@Ramona
Ramona,
There is no longer a $15,000 credit, only $8,000 which has a income limitation of $75,000 for a single filer (it degrades at that point).
I’ll write more about it when signed in the next few days
To amend the Internal Revenue Code of 1986 to provide a Federal income tax credit for certain home purchases. (Introduced in House)
HR 214 IH
111th CONGRESS
1st Session
H. R. 214
To amend the Internal Revenue Code of 1986 to provide a Federal income tax credit for certain home purchases.
IN THE HOUSE OF REPRESENTATIVES
January 6, 2009
Mr. WILSON of South Carolina introduced the following bill; which was referred to the Committee on Ways and Means
________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide a Federal income tax credit for certain home purchases.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. CREDIT FOR CERTAIN HOME PURCHASES.
(a) Allowance of Credit- Subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to refundable credits) is amended by inserting after section 25D the following new section:
`SEC. 25E. CREDIT FOR CERTAIN HOME PURCHASES.
`(a) Allowance of Credit-
`(1) IN GENERAL- In the case of an individual who is a purchaser of a qualified principal residence during the taxable year, there shall be allowed as a credit against the tax imposed by this chapter an amount equal to so much of the purchase price of the residence as does not exceed $15,000.
`(2) ALLOCATION OF CREDIT AMOUNT- The amount of the credit allowed under paragraph (1) shall be equally divided among the 3 taxable years beginning with the taxable year in which the purchase of the qualified principal residence is made.
`(b) Limitations-
`(1) DATE OF PURCHASE- The credit allowed under subsection (a) shall be allowed only with respect to purchases made–
`(A) after February 29, 2008, and
`(B) before March 1, 2009.
`(2) LIMITATION BASED ON AMOUNT OF TAX- In the case of a taxable year to which section 26(a)(2) does not apply, the credit allowed under subsection (a) for any taxable year shall not exceed the excess of–
`(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over
`(B) the sum of the credits allowable under this subpart (other than this section) for the taxable year.
`(3) ONE-TIME ONLY-
`(A) IN GENERAL- If a credit is allowed under this section in the case of any individual (and such individual’s spouse, if married) with respect to the purchase of any qualified principal residence, no credit shall be allowed under this section in any taxable year with respect to the purchase of any other qualified principal residence by such individual or a spouse of such individual.
`(B) JOINT PURCHASE- In the case of a purchase of a qualified principal residence by 2 or more unmarried individuals or by 2 married individuals filing separately, no credit shall be allowed under this section if a credit under this section has been allowed to any of such individuals in any taxable year with respect to the purchase of any other qualified principal residence.
`(c) Qualified Principal Residence-
`(1) IN GENERAL- For purposes of this section, the term `qualified principal residence’ means an eligible single-family residence that is purchased to be the principal residence of the purchaser.
`(2) ELIGIBLE SINGLE-FAMILY RESIDENCE-
`(A) IN GENERAL- For purposes of this subsection, the term `eligible single-family residence’ means a single-family structure that is–
`(i) a new previously unoccupied residence for which a building permit is issued and construction begins on or before September 1, 2007,
`(ii) an owner-occupied residence with respect to which the owner’s acquisition indebtedness (as defined in section 163(h)(3)(B), determined without regard to clause (ii) thereof) is in default on or before March 1, 2008, or
`(iii) a residence with respect to which a foreclosure event has taken place and which is owned by the mortgagor or the mortgagor’s agent.
`(B) CERTIFICATION- In the case of an eligible single-family residence described in subparagraph (A)(i), no credit shall be allowed under this section unless the purchaser submits a certification by the seller of such residence that such residence meets the requirements of such subparagraph.
`(d) Denial of Double Benefit- No credit shall be allowed under this section for any purchase for which a credit is allowed under section 1400C.
`(e) Special Rules-
`(1) JOINT PURCHASE-
`(A) MARRIED INDIVIDUALS FILING SEPARATELY- In the case of 2 married individuals filing separately, subsection (a) shall be applied to each such individual by substituting `$7,500′ for `$15,000′ in subsection (a)(1).
`(B) UNMARRIED INDIVIDUALS- If 2 or more individuals who are not married purchase a qualified principal residence, the amount of the credit allowed under subsection (a) shall be allocated among such individuals in such manner as the Secretary may prescribe, except that the total amount of the credits allowed to all such individuals shall not exceed $15,000.
`(2) PURCHASE- In defining the purchase of a qualified principal residence, rules similar to the rules of paragraphs (2) and (3) of section 1400C(e) (as in effect on the date of the enactment of this section) shall apply.
`(3) REPORTING REQUIREMENT- Rules similar to the rules of section 1400C(f) (as so in effect) shall apply.
`(f) Basis Adjustment- For purposes of this subtitle, if a credit is allowed under this section with respect to the purchase of any residence, the basis of such residence shall be reduced by the amount of the credit so allowed.’.
(b) Clerical Amendment- The table of sections for subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after the item relating to section 25D the following new item:
`Sec. 25E. Credit for certain home purchases.’.
(c) Effective Date- The amendments made by this section shall apply to taxable years ending after February 29, 2008.
What if I make more than the median income? My wife makes about 50,000 a year alone and I make much more. Is it possible to file separately and purchase the home in her name?
I bought a house in June 2008. I bought the house off my step-grandfather. WOuld I qualify for the credit and how would they go about finding out they are related to me? Chris
@Ray Cullinan
The income limit for a married couple is $150,000. Are you over that limit?
@Chris
Chris, No you wouldn’t qualify since you purchased from a family member. They would be able to see relationship from the seller / buyer transaction (I imagine they’ll look quite closely at this to make sure it’s not an open loophole)
Also, be aware it is no longer a $15,000 housing credit, but an $8,000 housing credit.
wasn’t there also a special refinancing option for those who wanted to keep current home? Available to all?
I researched the $7500 tax credit for you, and here’s a synopsis:
July 30, 2008 President Bush signed a major housing bill H.R. 3221 into law. As part of this housing bill, Congress created a new temporary tax credit to provide an incentive to first time home-owners
Amount of credit = 10% of cost of home, not to exceed $7500
Eligible properties are any single-family residence that will be used as a principal residence
Reduces income tax liability for the year of the purchase, and is claimed on the tax return for that year
Income limit = gross income of max $75,000/year or $150,000/year for a couple filing jointly
Purchasers may not have owned a principal residence in the three years prior to purchase
Purchases on or after April 9, 2008 through July 9, 2009
Question: I took out a loan in my name only to purchase a house (will close in April) I live with my husband – but he purchased that house before we were married. I also own another property that I rent out (it was never my principal residence) Would I qualify for the tax credit?
There seems to be rumors that this 15k tax credit is really money that is suppose to be paid back….like most of the stimulus money. Could you please clarify that this new 15k tax credit for purchasing a home is NOT any kind of a loan.
This guy is way off! Quit spreading rumors and check it out for real here http://www.federalhousingtaxcredit.com/2009/faq.php#11.
@Anon
If you learned how to read you’ll realize this was / is to discuss the legislation of the 15k bill that was on the verdict but eclipsed with the 8k credit..
Before you comment or try to bash someone.. learn what you are first talking about.. douche..
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