First-time home buyers need to start looking now for a home in order to take advantage of the $8,000 federal tax credit because their chance for using the credit is closing quickly.
In order for a first-time home buyer to qualify for the federal tax credit, the home purchase transaction will have to close before midnight on November 30th of this year or risk losing the tax benefit all together. Since the lending processes is a slow and tedious task buyers will need as much time as possible to close escrow by the due date.
Buying a home can takes weeks to months, and with all that is involved with each real estate transaction buyers should take caution and realize that there are many things can go wrong along the way before closing escrow.
Buyers should be aware that delays should be expected no matter how fast they think they can close.
Furthermore, November marks the beginning of the holiday season and buyers should not forget that the Thanksgiving holiday this year falls on November 26th and that will close-out four additional days before the deadline.
Buyers should not assume that Congress may extend or expand the tax credit, because the chances of that happening are slim to none at least for the moment even though lawmakers can do the unexpected. The House and Senate leaders have both said they will not work on extending the tax credit until they have finished their work on the healthcare-reform legislation.
Also, with so many signs that the housing market is beginning to make a recovery its felt that legislators may decide that the housing market will no longer need any additional boost from the government.
As a reminder, here is what buyers need to do in order to take advantage of the tax credit:
One requirement for the credit is that the home must have been bought on or after Jan. 1 2009 and before Dec. 1, 2009. The home buyer may not have owned a home in the last three years prior to buying their new home, and the buyer, if they are a single tax payer, must have a modified adjusted gross income of less than $95,000 or $170,000 for married couples.
Another factor that may affect the amount of credit these buyers may claim is that the credit can only be equal to 10% of the purchase price of the house, up to a maximum of $8,000, and that figure may be reduced if the buyers have a modified adjusted gross income between $75,000 for a single taxpayers or $150,000 for married couples and the upper income limit.
Buyers must complete the IRS Form 5405 to determine the amount of the tax credit they are eligible for and then enter it on their IRS 1040 tax return form on line 69 to claim the credit.
There are several options when they can claim the tax credit, however they can only claim it after the purchase of the home is complete and that usually happens when the title of the property has been transferred to the buyers.
If the home is purchased after April 15 2009, then the buyer(s) will need to file for an extension for the tax year 2008. Then when they do file their 2008 return, with the extension, it must be completed by Oct. 15th 2009 or, if they choose to do so, they can claim the tax credit on their 2009 income tax return in the year 2010.
There are a few things the new home buyers need to take into consideration when deciding whether they want to claim the credit on either their 2008 or 2009 returns. They need to decide how quickly they need the tax refund as well as what their expected income will be for 2009. Luckily, there are no constraints on how the new home buyers can use the money, however, they may want it fast in order to pay for expenses related to their new home like moving costs, the buying of furniture or any remodeling they want. Also, if the home owners know that their income may change next year due to career advancement, salary bonuses or retirement, then they should calculate how their future income limits might affect their credit amount.
This article is for informational purposes only. Individuals should consult with qualified tax professionals on each individual's particular situation. This article should not be construed as tax or legal advice.