Option 1st Financial Blog

This blog is devoted to discussing the original Federal Tax credit for "first time home buyers" and the new Federal Tax Credit for repeat home buyers. Both tax credits translate to good news all around for anyone interested in purchasing a home.

The original $8,000 tax credit which was due to expire the end of this month has been extended by Congress through June 30th but last week, Congress passed a New Federal Tax Credit, which is broader than the old tax credit because it provides a $6,500 tax credit to those of you that own a home but would like to purchase a new primary home.  

Let's first review how "first time home buyer" is defined so that you can determine your eligibility for one of two tax credits. The law defines “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the home ownership history of both the home buyer and his/her spouse.

For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit.

If you do not fall into the category, chances are that you fall into the category of repeat home buyer which the law defines as a home owner who has owned and resided in a home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the home ownership history of both the home buyer and his/her spouse. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit. In fact, purchases of homes priced above $800,000 are not eligible for the tax credit. To qualify, the income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return.

The new Federal Tax Credit is available immediately, it took effect on November 6th, the day President Obama signed the legislation. This means that if you meet the criteria-you can claim the credit as soon as you close on a qualifying home. Home buyers who go to closing between November 6th and December 31st, 2009 can claim the $6,500 credit on their 2009 Federal tax returns or amend their 2008 returns. Similarly, eligible purchasers in 2010 will be able to file for the credit on their 2009  or 2010 returns. 

Of course, at Option 1st Financial, we still hold the position that you should never rush into buying a home because of any incentive. We still advocate having an emergency fund equivalent to 3 to 6 months of your income before taking on the new purchase of a home or upgrading. Let's not forgot the past 3 years of massive foreclosures and that many foreclosures could have been preventing with a rainy day fund.

Give us a call for additional details and/or questions about either tax credit.