Tax Tips: First-time home buyer benefits from the government

By now you may have heard about help for first-time home buyers in the Housing and Economic Recovery Act of 2008. I'm not a big fan of this legislation in general, but I still think it's important for consumers to know what it offers and how they can benefit.

If you're a first-time home buyer, the federal government is essentially offering you a $7,500 loan, interest-free, to be paid back over 15 years. Not a bad deal at all!

To be eligible, you must meet the following requirements:
  • Be buying your first home (rental properties and vacation homes purchased in the past don't count against you, but if your spouse owned a home before, that does count against you)
  • Purchase the home between April 9, 2008 and July 1, 2009
  • Not have income greater than $75,000 (single) or $150,000 (married)

If you meet the requirements, you can get a tax credit of up to $7,500 on your 2008 or 2009 tax return, and it's refundable. A tax credit reduces your tax liability dollar for dollar (so it's better than a deduction which would just reduce your income, which is then taxed). Think of this as the government wiping out $7,500 of the taxes you should pay for 2008, and you'll likely get a nice fat refund because of that.

Example: Suppose your tax bill for the year added up to $4,500, and you've already had $5,000 taken out of your paychecks for federal taxes. You'd normally get a $500 refund, the difference between what you really owed and how much you had taken off your checks.

With this $7,500 credit, your tax bill is reduced from $4,500 to ($3,000) -- yes that's a minus -- and you'll be getting back the $3,000 negative balance plus the $5,000 you already paid in through your payroll deductions. That's $8,000 back in your pocket at tax time!

The money isn't totally free, however. You'll have to pay the money back over 15 years, so if you got the full $7,500 credit, you'll be paying $500 a year each year at tax time. Repayment doesn't begin until 2010 for those who take the credit in 2008, and 2011 for those who take it in 2009. Consider the delayed repayment as an extra little bonus.

I can hear consumers now: Why do I have to repay it at all? Why not? No one gave me any free money when I bought my house. And an interest free loan for 15 years is a great deal and a wonderful help to those buying a house. Be grateful for what the government is providing consumers with this program!

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

Energy Tax Credit: Which Home Improvements Qualify?

Taxpayers who upgrade their homes to improve energy efficiency or make use of renewable energy may be eligible for tax credits to offset some of the costs. As of the 2017 tax year, the federal government offers two such credits: the Residential Energy Efficiency Property Credit and the Nonbusiness Energy Property Credit. The credits are good through 2017, except for the solar credits which are good through 2019 and then are reduced each year through the end of 2021. Claim the credits by filing Form 5695 with your tax return.

Read More

Brought to you by TurboTax.com

Buying Your First Home

Buying your first home is a huge step, but tax deductions available to you as a homeowner can reduce your tax bill.

Read More

Brought to you by TurboTax.com

Filing an Income Tax Extension

If you aren't able to complete your federal tax return by the April deadline, find out how and when to file for an IRS extension with these tips from TurboTax.

Read More

Brought to you by TurboTax.com

Changing Jobs

Have you moved on from your old job, or are you in the middle of a job change? Even if you're just thinking about it, here's some tax information you'll need to keep in mind.

Read More

Brought to you by TurboTax.com
Read Full Story