Benefits of the tax credit
Homebuyers can find cash today with the $ 8,000 first-time homebuyer tax credit. The credit is the showpiece of the 2009 American Recovery and Reinvestment Act. The government designed it to boost housing sales and spur the market into recovery. Projections are that the plan was successful. Lawrence Yun, Chief economist for the National Association of Realtors said, “According to our projections, homebuyers will purchase an additional 300,000 homes in the coming year as a result of the tax credit.”
Overall, the tax credit was a help to the nation’s recovery efforts. Yun said, “We think this year’s tax credit will certainly have a much bigger impact because it is a true tax credit which is also refundable. For instance, if you owe $ 1,000 in taxes and qualify for the first time homebuyers credit, you receive a tax refund of $ 7,000.” Yun believes the credit will continue to bring down housing inventories and stabilize housing costs.
Tax credit for first time homebuyers
There are rules along with the first-time homebuyer tax credit. Here are the main ones:
- It does not have to be repaid unless the home is sold within three years
- It is available to homes purchased between January 1st and December 1st of 2009.
- Restricted to individuals with AGI of $ 75,000 or more and couples with AIG of $ 150,000 or more
- The tax credit is for up to 10% of the purchase price, to a maximum of $ 8,000
- The credit can be taken in 2008
- It applies to first-time homebuyers, or those who have not owned a home in three tax years
The filing exceptions to the tax credit are:
- Those who closed on a home prior to April 15, 2009
- Those who got an extension to file taxes
- Those who filed an amended return
Critics of the tax credit
Though many financial experts are in support of the tax credit, there is still a portion of analysts who don’t believe it is the easiest way to find cash today. Greg Smith, Certified Financial Planner with The Wise Investor Group, believes the tax credit is an incentive to buy, but the buyer needs to be realistic about the credit’s potential. He said, “This incentive only works for people who have complete job security, who know they won’t be transferred within three years, who qualify as first-time homebuyers and have the ability to obtain financing. They must also live in an area with reasonable housing prices.”
Michael Dooley, another financial planner in Beverly, Massachusetts, agrees. He said, “While the theory behind the tax credit is great, I just don’t think $ 8,000 is enough. The people who would benefit from this the most are looking to survive financially or are even leaving their homes because they can’t afford them.” The tax credit is intended to cover up to 10% of the purchase price of a home, but numbers indicate that it covers closer to 4% for most people.
The performance of the tax credit
Although there are detractors to the tax credit who don’t believe it is the answer to finding cash today as easily as it was supposed to, it still is allowing buyers to purchase homes. The intent behind the tax credit was to entice first time homebuyers into taking the plunge. The tax credit has done that and can’t be deemed a failure yet.