Taking Advantage of the First Time Home Buyer's Tax Credit

One of the most powerful benefits of Obama's stimulus plan is the First Time Home Buyer's tax credit.

The bill provides for up to an $8,000 tax credit* that would be available to first time home buyers for the purchase of a primary residence on or after January 1, 2009 and before December 31, 2009. First time home buyer does not necessarily mean you have never owned a home. In order to be eligible for this credit, you cannot have owned a home in the last three years and the home you are purchasing must be intended for use as a primary residence.

There are some income limitations. If you are single, you cannot have Adjusted Gross Income* over $75,000 and if you are married, your Adjusted Gross Income cannot exceed $150,000.

The credit is calculated based on the purchase price of the home. In order to calculate the amount you will receive, simply take 10% of the purchase price. This is the amount you will receive in the form of a credit, not to exceed $8,000 of course. In addition, if your taxes due are less than the amount of the credit, you will receive a check for the balance! Essentially, this equates to the government giving you a 10% down payment!

This year is an excellent time to buy a home. Mortgage rates are at significant lows, housing prices have dropped significantly, and now, this tax credit is refunding you the 10% you are going to be putting down on your house.

*Adjusted gross Income is your income after certain deductions including business expenses, alimony, retirement account contributions, and student loan interest.
* A tax credit is very different from a tax deduction. A tax credit is a dollar for dollar savings on the actual tax you owe. If your tax liability for the year is $5,000 and you have a tax credit for $3,000, you will only owe $2,000 in taxes.