The federal tax credit has been a great program for those seeking their first home. It can be used in many ways. To help first time homebuyers with down-payments and closing costs, the government will allow buyers who finance their purchases with a federal insured loan to apply their anticipated credit immediately toward the transaction. Others may choose to wait until they file their 2009 taxes for the refund. Still others may apply the tax credit via an amended return for 2008 taxes. Buyers with specific questions should always consult a tax professional.
In order to Close by November 30th?
Buyers should consider the following timeline. They must look for a house (10-20 days minimum), write the offer, wait for the acceptance (up to 4 days although see special note below regarding short sales), secure financing (7 days), do inspections (7-14 days), request the seller correct major or safety defects (2 days) wait for seller’s response (5-7 days). The escrow begins when there is communication of acceptance and approval. With the new requirements from the federal government and mortgage lenders, a traditional escrow now takes at least 30 days and more closely 45-60 days.
Special note regarding short sales: When buying a short sale, the full acceptance and approval process is currently taking 3-6 months plus the normal 30-45 days in escrow.
A buyer should be prepared to complete a simple transaction in 2-3 months. The buyer should also be prepared for minor delays to resolve issues that might arise and which might delay a closing. The buyer should also consider that November is really the shortest month of the real estate calendar. The Thanksgiving holidays at the end of the month mean there are fewer days to record and close escrows. The bottom line, buyers who want to receive the federal tax credit need to act now, or they will loose out on a great opportunity.
Who qualifies for the federal tax credit?
A first time homebuyer is defined as anyone who has not owned a principal residence in the last three years. If a married couple purchases a home, neither of the parties could have owned a primary residence in the last three years, in order to claim the credit on their joint return. Non-married joint owners who qualify may proportion or divide the credit on their taxes as long as it does not exceed the credit due for the purchase property.
What kind of property qualifies for a federal tax credit?
Only principal residences, new or re-sales are acceptable properties for the tax credit. The primary residence may be a condo, townhouse, single family dwelling, mobile or modular home, or even a house-boat. Vacation homes, second homes, and investment properties do not qualify for the tax credit.
How is the federal tax credit calculated?
The maximum credit is equal to 10% of the purchase price up to $8,000. Income is a factor in the final amount of the actual tax credit.
For a single taxpayer: With an income below $75,000 the credit is equal to 10% of the purchase price up to $8,000; With an income between $75,000 and $95,000 the tax credit is reduced on a sliding scale; With an income greater than $95,000 no credit is given.
For a married couple filing jointly: With an income below $150,000 the credit is equal to 10% of the purchase price up to $8,000; With an income between $150,000 and $175,000 the tax credit is reduced on a sliding scale; With an income greater than $175,000 no credit is given.
Conditions if you take the tax credit?
A home purchased during the specified time period cannot be resold within a year of purchase if the tax credit is taken. After that year, there are no conditions for the re-sale.