2009 Financial Stimulus Plan for Homebuyers

There has never been a better time to buy a home!

The stimulus plan to help increase home sales, stop the falling real estate values, and reduce the number of foreclosures includes a $8,000 tax credit for homebuyers. It will not need to be paid back like the previous credit.

Here are the details as they are being released:

For first time buyers only (defined as not owning a primary residence for prior 3 years)
The $8,000 does not need to be repaid unless you sell the home within 3 years. There are certain exceptions such as death and divorce.
Home must be purchased before December 1, 2009.
Credit is lesser of $8,000 or 10% of home value.
Income limitations to qualify are $75,000, or $150,000 for a couple.

A home buyer will have their Federal Income Tax Liability reduced by $8,000 for 2009 if they purchase a home (must close/settle) anytime in 2009. This does not mean a home buyer must wait until they file their tax return next year to receive the $8,000.

By increasing the amount of tax exemptions for a salaried worker, or reducing estimated Federal Estimated Income tax payments for self-employed and 1099'ed workers, the $8,000 can be received throughout this year.

Salaried workers may submit a new form W4 to their payroll department. Use the IRS withholding calculator to see how many exemptions you should claim to reduce your Federal tax withholding by $8,000 this year.

The average worker will be paying NO Federal Income Tax from their paychecks, and will still receive a sizable tax refund next year.

For example:

Paid Bi-Weekly
Decide in March you will buy a home this year
$400 in federal Taxes withheld from each paycheck.
3 Months have already passed with $400/check being sent to IRS. You will get $600 of this $2,600 back next winter as a refund when you file your taxes.
Your annual Federal Tax Liability on your 2008 1040 is $10,000, 1040 line 61.
- Option 1: $8,000 credit means you will get a $8,000 refund next winter on your 2009 1040 if you leave your paycheck alone.
- Option 2: you can immediately increase your withholding to stop paying any Federal Income Taxes fort he rest of the year (adds $7,800 to your take home pay over 9 months at $400 per paycheck).
Set aside the amount your pay check increases until you buy a home. Use if for the down payment or furniture, etc.
Having this extra savings in the bank will help with your mortgage approval.
In the event you do not buy a home, you have saved the money in the bank, that you will owe back to the IRS.
Obviously, do not spend any of that money until you buy your home.
You will also receive a $600 refund next year ($8,000 credit - $10,000 taxes liability for non home buyer+ $2,600 paid before exemptions changed into effect April 1).

Consult an accountant. Provided for informational purposes.