MARCH 2009 - Page 4

BETTER THAN BEFORE Bigger Tax Credit Offers Better Incentive For First-Time Buyers With today's low interest rates, more-affordable home prices and big selection of homes on the market, the added incentive of a tax credit should make first-time buyers sit up and take notice. As we've reported previously, the Housing and Economic Recovery Act of 2008 offered qualified first-time home buyers an opportunity to take up to a $7,500 tax credit if they purchased a principal residence and settled/closed on it after April 8, 2008 but before July 1, 2009. Although these home buyers would have to pay the tax credit back, they have 15 years to do so in equal installments (unless the home is sold or refinanced before that), and do not have to start repaying the credit until two years after the purchase. But wait, there's more! Earlier this year, the American Recovery and Reinvestment Act, which became law in February, included an even better tax credit. Now, qualified first-time home buyers who purchase a home from January 1, 2009 through November 30, 2009 can take up to an $8,000 tax credit with no repayment required. (However, if the home is sold within three years, the tax rebate is forfeited.) Unfortunately, buyers can only take one of these credits. In both cases: Qualified buyers are those who have not owned a principal residence during the three years prior to the purchase closing/settlement date. The amount of the credit is limited to 10% of the purchase price of the home, but no more than $8,000 or $4,000, depending on filing status. Those who qualify can claim the credit on their federal income tax return. The full credit is available to married joint-filers with Modified Adjusted Gross Income (MAGI) up to $150,000, and to single filers with MAGI up to $75,000. The credit is phased out and disappears completely for MAGIs more than $170,000 (joint filers) or $95,000 (single filers). Great Benefits In either case, we're talking about a tax credit, not just a deduction. That means when you file your taxes for 2008 or 2009 (depending on when you buy), your total tax bill -- rather than your taxable income -- is reduced by up to $7,500 or up to $8,000 (depending on the credit you qualify for). If you are due a refund for the tax year, you'll get that much more. If you owe taxes, you'll owe that much less. Who knows, you could even get a refund! The beauty of the tax credit is you can make it worth so much more than its face value, depending on how you use it. Say you use the credit to prepay some of your mortgage. For example, you close on a $200,000 30-year fixed-rate mortgage at 6% in August 2009. Next year, after filing your taxes, you use the credit to prepay $8,000 of mortgage principal along with your 13th regular loan payment. That single extra payment would shorten your loan term by 2 years, 10 months and save you an impressive $33,475 of interest expense over the life of the loan.(Your savings would be somewhat lower, however, because your mortgage-interest tax deduction would be smaller, depending on your tax bracket.) You could also use the credit to help furnish your new home, make needed repairs or improve your home with amenities that add to its value -- all interest free! Please call us for more information and to find out whether you can qualify for this great limited-time tax credit.