In 2009, Congress passed the Worker, Homeownership and Business Assistance Act. This law extended an $8,000 tax credit to first-time homebuyers. The credit was extended through April 30, 2010, and following legislation gave buyers currently in the process of finishing deals another 3 months of qualification. Tens of thousands of families have benefited from the tax credit, which includes both advantages and disadvantages.

Purchasing Power

The primary advantage of the first-time homebuyer tax credit is the fact that it provides individuals and families greater opportunity to purchase homes. The 8,000 tax credit, oftentimes, can be applied to the down payment or closing costs on a home. It’s often an inability to spare for these prices that keeps many citizens from purchasing their first homes. For those who have saved, the credit allows them to use more money to the deposit, which reduces the amount of a home loan and contributes to lower mortgage payments.

Economic Boost

By encouraging more taxpayers to purchase homes, the tax credit favorably influences the economy. The result is higher demand for home purchases, which retains property values from falling and also assists sellers get top dollar for their homes without long waits. Moreover, the tax credit helps the housing business by fostering income and profits to mortgage companies, title companies, real estate companies, brokers and property investors. New homebuyers also regularly install new furniture and appliances and paint and remodel rooms, which further contributes to a better economy.

Tax Issues

Back in November 2009, Congress passed new documentation requirements that contributed to increased compliance checks from the IRS. Because of this, some buyers discovered they would not get the credit until they filed the proper documentation to the IRS. Some homebuyers may fill out or file the paperwork at an incorrect manner, which also guarantees payment. This becomes an issue for homeowners who seek to use the tax credit toward the down payment or closing costs on a new home. If buyers don’t submit the correct documentation, the final on the home can be postponed. According to the IRS website, taxpayers that claim the credit on their 2009 tax returns are required to file paper returns together with Form 5405, First-Time Homebuyer Credit and Repayment of the Credit. They also must have a replica of a settlement statement used to finish the purchase.

Limitations

Some homebuyers are not eligible for the credit. Single taxpayers who make more than $125,000 a year are not eligible, and also the limit for married couples is $225,000. At first, the income limitations were $75,000 for single taxpayers and $150,000 for married couples, but Congress passed laws raising the limits for purchases made after Nov. 9, 2009. Purchases made between January 1, 2009, and November 6, 2009, follow the older income limitations. Besides earnings, the selling cost of the home can also be restricted. The credit only applies to homes valued at $800,000 or not. The tax credit also does not apply to individuals who purchase a home from relatives, including grandparents, parents, children or grandchildren. The credit also is available only to taxpayers who haven’t owned a principal residence during the 3 years prior to the purchase date.

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