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A housing tax credit can significantly reduce the amount of tax you owe to the Internal Revenue Service. In addition, from January 1, 2009 until December 1, 2009, Americans can receive a tax credit up to $8,000 for a first-time home buyer for a primary residence. Although tax credits are great way to save money on your tax bill, there is often confusion about them. In fact, there are many myths that circulate regarding housing tax credits. Here are some of the most common myths associated with housing tax credits:
Myth#1. You must never have owned a home to be a First-Time Home Buyer.
To be qualified as a First-Time home buyer you simply not need own a home at the present time, or at anytime within the past 3 years. If you are married, the qualification is based on both parties of the marriage. The time limitation starts from the closure of the mortgage or the date you take title of the home.
Myth #2. Anyone can apply for the Housing Tax Credit.
While anyone can apply for the tax credit, in order to qualify for the tax credit your annual income can be no more than $75,000 if you’re a single tax payer and $150,000 for married tax payers. The credit will be reduced if your adjusted gross income is over these base amounts.
Myth #3. The Tax Credit has to be repaid.
No. Unlike the tax credit Congress enacted in July of 2008, this tax credit does not have to be repaid. With the previous tax credit, it had to be repaid. The credit was actually an interest free loan.
This credit is a genuine tax credit - as long as a home buyer keeps the home as his/her primary residence for 3 years. If the house is sold - or not used as primary residence – the taxpayer will have to repay the credit.
Myth #4. To qualify for the Housing Tax Credit, you must buy a house.
A home is a residence, it can be a detached home, a duplex, townhouse, a condominium, a pre-manufactured home (mobile home) or a houseboat. The only restriction is you cannot purchase the home from your parents, children, grandchildren or your spouse.
Myth #5. I have to fill out forms to apply for the Housing Tax Credit before purchasing the home.
There are no forms needed to apply for the tax credit. You just need to fill out the IRS tax form 5404 when filing your income tax return. Then, follow the instructions on the tax forms.
Myth #6. I have to buy a preexisting home.
You can apply the tax credit for an existing home or a newly constructed home. If you own a lot and construct your home yourself, or with a builder, your date of ownership is considered the date you first occupy the home. For homes that are built by a developer/home builder, eligibility is determined by the settlement date.
Myth #7. I have to be a U.S. citizen or apply for the Housing Tax Credit.
An alien resident who has not owned a home in the past 3 years, and is within the income limits, can also claim the tax credit.
Myth #8. The tax credit reduces my adjusted gross income.
This is a credit, not a deduction. The credit is added to your tax refund or lowers the amount you need to pay IRS for your income tax. If you do not qualify for a tax refund, or you earn too little to need to file a tax refund, you can file your taxes and with the credit amount will be paid to you by the IRS.
These are but a few of the myths that surround the new housing tax credit. If you have questions, or need more information, about housing tax credits that you may be eligible for, then ask your accountant or visit the IRS website.
Myth#1. You must never have owned a home to be a First-Time Home Buyer.
To be qualified as a First-Time home buyer you simply not need own a home at the present time, or at anytime within the past 3 years. If you are married, the qualification is based on both parties of the marriage. The time limitation starts from the closure of the mortgage or the date you take title of the home.
Myth #2. Anyone can apply for the Housing Tax Credit.
While anyone can apply for the tax credit, in order to qualify for the tax credit your annual income can be no more than $75,000 if you’re a single tax payer and $150,000 for married tax payers. The credit will be reduced if your adjusted gross income is over these base amounts.
Myth #3. The Tax Credit has to be repaid.
No. Unlike the tax credit Congress enacted in July of 2008, this tax credit does not have to be repaid. With the previous tax credit, it had to be repaid. The credit was actually an interest free loan.
This credit is a genuine tax credit - as long as a home buyer keeps the home as his/her primary residence for 3 years. If the house is sold - or not used as primary residence – the taxpayer will have to repay the credit.
Myth #4. To qualify for the Housing Tax Credit, you must buy a house.
A home is a residence, it can be a detached home, a duplex, townhouse, a condominium, a pre-manufactured home (mobile home) or a houseboat. The only restriction is you cannot purchase the home from your parents, children, grandchildren or your spouse.
Myth #5. I have to fill out forms to apply for the Housing Tax Credit before purchasing the home.
There are no forms needed to apply for the tax credit. You just need to fill out the IRS tax form 5404 when filing your income tax return. Then, follow the instructions on the tax forms.
Myth #6. I have to buy a preexisting home.
You can apply the tax credit for an existing home or a newly constructed home. If you own a lot and construct your home yourself, or with a builder, your date of ownership is considered the date you first occupy the home. For homes that are built by a developer/home builder, eligibility is determined by the settlement date.
Myth #7. I have to be a U.S. citizen or apply for the Housing Tax Credit.
An alien resident who has not owned a home in the past 3 years, and is within the income limits, can also claim the tax credit.
Myth #8. The tax credit reduces my adjusted gross income.
This is a credit, not a deduction. The credit is added to your tax refund or lowers the amount you need to pay IRS for your income tax. If you do not qualify for a tax refund, or you earn too little to need to file a tax refund, you can file your taxes and with the credit amount will be paid to you by the IRS.
These are but a few of the myths that surround the new housing tax credit. If you have questions, or need more information, about housing tax credits that you may be eligible for, then ask your accountant or visit the IRS website.
