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:

  1. For first time buyers only (defined as not owning a primary residence for prior 3 years)
  2. 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.
  3. Home must be purchased before December 1, 2009.
  4. Credit is lesser of $8,000 or 10% of home value.
  5. 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.

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