By Ilyce Glink, Thursday, March 5, 2009.
Editor's note: The original article contained an error. Those homebuyers who are eligible for the $8,000 tax credit can claim that credit when filing their 2008 tax return.
As we move further into tax season, Treasury and IRS employees have been busy filling in the missing pieces on all of the new tax laws that were passed as part of the recent stimulus package.
When it comes to real estate, the rules are at best confusing. Let's shed a little compact fluorescent light on the subject:
2008 $7,500 tax credit vs. 2009 $8,000 tax credit
If you were a first-time buyer who purchased a home after April 8, 2008 through the end of the year, you might have realized that you could get a $7,500 tax credit on your 2008 tax return. This is a nonrefundable tax credit, which means that even if you don't pay $7,500 in taxes you'll still get that much in the way of a refund, provided you meet other qualifying details, according to Mark Luscombe, principal analyst for the tax and accounting group at CCH.
However, the 2008 $7,500 tax credit must be paid back in $500 equal installments over 15 years, which means that this tax credit effectively functions as a zero-interest loan. (Luscombe said the fine print in the new law says that if the taxpayer dies, the rest of the payback is forgiven. It's unclear whether both homeowners have to die if the property is owned jointly -- or just one of the homeowners.)
If you chose to close on Dec. 31, 2008, rather than Jan. 2, 2009 (perhaps to be able to itemize the interest and points on your 2008 tax return), you may be kicking yourself. The recently signed stimulus bill took the $7,500 tax credit and turned it into an $8,000 tax credit -- one that doesn't need to be repaid, Luscombe said.
But there are some wrinkles that require you to pay attention. To qualify for the $8,000 tax credit, you must earn less than $150,000 in adjusted gross income for couples filing jointly. Also, you must stay in the house (assuming it's your primary residence) for three years or there may be some payback requirement, according to Luscombe. (He's unclear how the IRS would be able to follow up, and some of the regulations and filing requirements aren't fully explained at the moment.) ... CONTINUED
