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.
- 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.