First Time Home Buyers Tax Credit of $8,000

Many Programs and states are offering different ways to get the $8,000 credit to first-time buyers faster and more efficiently.

When it comes to the $8,000 tax credit for first-time homebuyers, it seems there’s a new program every week to help tap that money today.

The credit can be claimed on 2008 or 2009 tax returns. Homebuyers who get a loan backed by the Federal Housing Administration (FHA), can use the money to cover closing costs and other fees, and at least 10 states offer ways to use the tax credit faster.

To be eligible as a ‘first-time home buyer’, a person cannot have owned a home in the past three years. So if you’re ready to take the leap,here are some helpful and insightful tips on what to do with that $8000:

INCOME LIMITS: The tax credit, for homes purchased through the end of November 2009, comes with income thresholds, $75,000 for individuals and $150,000 for joint filers. Above those limits, the credit begins to phase out. If you bought a home this year and expect your 2009 income to be higher than your 2008 income, it makes sense to file for the credit this year using a 2008 amended return.

However, if you think your income will decrease, due to job loss, wage cuts or hour reductions, it makes more sense to file for the tax credit on your 2009 tax returns to get the most out of the credit.

TAX WITHHOLDING: Another benefit to waiting until 2009: You can increase your take-home pay. By taking the credit next year, you can change your tax withholding status with your employer now and get more on a paycheck-to-paycheck basis.

You’ll be giving up a bigger tax refund next year, but each month you’ll have more money in your account to spend on that new house.

One last tax strategy to employ is to reduce your federal and state tax withholding to adjust for the tax deduction you can take on the mortgage interest and property taxes you pay.

BRIDGE LOANS: Ten states (and more joining every day) are offering so-called “bridge loans” for the federal tax credit, so homebuyers can take advantage of the $8,000 before the 2010 filing season. Qualified homebuyers in Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania and Tennessee can receive a ‘bridge’ loan with little to no interest and repay it with the tax credit refund next year.

Each state program varies slightly with some requiring a minimum down payment contribution from the buyer.

Even nonprofit organizations like NeighborWorks America are also offering bridge loans for the tax credits.

ADVANCE CREDIT: In May, the FHA started to allow first-time buyers to receive advances on the $8,000 first-time homebuyer tax credit from lenders. This way they don’t have to wait to get the money next year from the Internal Revenue Service. Buyers still have to come up with the FHA’s required 3.5% down payment, but the advance from the tax credit can be used towards closing costs, fees or to increase the down payment amount.

Many believe that not all lenders will participate because the process involves more work for the lender. However, some lenders are charging an additional fee up to 2.5% for the additional work. A fee that is regulated by the FHA.

The bottom line for anyone that is receiving this economic stimulating $8,000 is to speak with a credible tax accountant about the best way to apply the credit to your personal situation. Not one application is the best for everyone, which is why the FHA is being flexible and truly allowing this credit to be an economic stimulus.

For more information on the first-time buyer tax credits check out these earlier Denver’s Real Estate News articles:

http://www.denversrealestatenews.com/frequently-asked-questions-about-the-first-time-home-buyer-tax-credit/

http://www.denversrealestatenews.com/why-you-should-buy-your-first-home-in-denver-now/

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