After the Homebuyer Tax Credit: Mortgage Tax Deductions

Are you ready to celebrate the return of the Federal Home Buyer Tax Credit? Unless you're one of the 180,000 Americans with a pending sales agreement in contract by April 30, 2010, a celebration is probably out of order.

While Californians and military personnel can still get state and military tax credits-California's $10,000 state tax credit will last until the end of 2010 and military personnel can get the Federal tax credit if they have a binding sales contract by April 30, 2011 and close by June 30, 2011-the truth is the tax credit is probably over for now. Sure, some debates are still going on: On June 16, the U.S. Senate voted for a three month extension to give people more time to close their homes if they signed a contract by April 30, 2010 and that bill is now in reconciliation. However, while many lobbyists and consumers are working overtime to put the issue in front of Congress before the end of the summer buying season, the sad truth-especially for potential homebuyers and real estate agents-is that the mood in Congress does not currently seem to favor an extension of the tax credit per se.

Some say that the tax credit was such a huge success -- increasing new home sales contracts by 5.3 percent in March over February and up 21.1 percent above March 2009 -- that the entire homebuying market finally is steadying as a result. Lawrence Yun, chief economist for the National Association of Realtors even went so far as to declare that "the homebuyer tax credit has helped stabilize the market." While Yun expects sales to drop in the summer because so many rushed to buy in time to get the credit, he predicts that "later in the second half of the year, and into 2011, home sales will likely become self-sustaining if the economy can add jobs at a respectable pace."

Of course, that's a big if, and one it's probably not wise to bet on. No doubt, a tax credit is much more valuable than a tax deduction, especially for first time buyers: A tax credit reduces the actual tax you pay, while a tax deduction reduces the amount of income upon which you'll be taxed. Still, tax deductions are here today, and highly unlikely to change according to political whim. (The mortgage tax deduction was introduced along with income tax in in 1913.)

So, for first time buyers waiting for a tax credit, stop waiting: Your best bet is to make sure your finances are in tip-top order so you can save enough for a downpayment and get a deduction on a mortgage. Keep a tight focus on your credit score, but most of all pay down your debt and keep saving for the day you can get that mortgage tax deduction.

For those who already own, it's time to move on from the tax credit. Make sure you understand the mortgage interest tax deduction, and are getting its full benefits. Interest you pay on your mortgage is tax deductible, within limits. If you're married and filing jointly, you can deduct all your interest payments on a maximum of $1 million in mortgage debt secured by a first or second home. The maximums are halved for tax payers filing separately. To make sure you understand all the ins and outs of the mortgage tax deduction, be sure to check out IRS Publication 936, Home Mortgage Interest Deduction, available at

Lita Epstein has written more than 25 books including "The Complete Idiot's Guide to Improving Your Credit Score" and "The 250 Questions Everyone Should Ask About Buying Foreclosures."

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