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Home > Home Buying Tips > Make the Most of your Home Buying Tax Credit

Make the Most of your Home Buying Tax Credit

Are you a first time home buyer? You will definitely want to make sure that you take the most advantage possible from the home buying tax credit programs available for first time homebuyers.

If you are not familiar with the tax credit for first time home buyers you should know that this program can be claimed either on 2009 or on 2010 tax returns. If you obtain a loan that is backed by the Federal Housing Administration, you can use funds to cover closing costs as well as other fees including the down payment in certain cases. Also, there are several states which provide methods for home buyers to use the tax credit in even faster ways.

In order to be eligible for the tax credit, you must not have owned a home within the preceding three years and you must buy the house, or enter into a binding contract to buy, on or before April 30, 2010. Home buyers who purchases a home from Apr 8, 2008 to June 30, 2010 may be able to take advantage of the first-time homebuyer credit. There are some tips that you should keep in mind.

First, remember that there are applicable income thresholds. In order to qualify for the tax credit, individuals must have an income of not more than $75,000 and joint filers must have an income that does not exceed $150,000. The credit does begin to phase out once those limits have been exceeded.

If you did not claim the tax credit on last year's taxes and you claim it on your 2010 taxes then there is the possibility of actually increasing your take home pay. This is because you will be able to change your withholding status and receive more money on your paycheck. While you will not be able to receive as large of a tax refund next year, you will have a little extra income every month now.

In addition, you can reduce your federal as well as your state tax withholding in order to account for the tax deduction that you will be taking on the property taxes and mortgage interest that you will be paying.

There are now at least ten states in which bridge loans are being offered for the federal tax credit. Such loans allow homeowners to benefit from the $8,000 tax credit prior to the 2010 filing season. At the current time, in order to qualify, you must be a homebuyer in the following states: Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania and Tennessee. In these states, homebuyers have the ability to receive a loan with no or little interest and then repay the loan using their tax credit refund from the next year. This certainly provides many homeowners with more flexibility than they previously had. Keep in mind that the home buying tax credit programs do vary according to state. Some programs require a minimum down payment be made by the home buyer.

Apart from that, there are some non-profit organizations that are offering bridge loans for the tax credits as well, including NeighborWorks America. Furthermore, the state of California has also recently come up with its own one-time home buying credit. This program applies to homes that are newly built and are purchased between February 28th 2009 and March 1, 2010. This is a nonrefundable credit which is available to all home buyers, not just first time home buyers. The credit is the equivalent of 5% of the purchase price up to a maximum amount of $10,000. The credit may be claimed over a three year period. Qualified properties must be single-family residence properties and must also be the principal residence of the buyer.

Residents in California may take both the federal as well as the state tax. Residents should understand that funding is limited and at the current time there are no plans to provide more funding for the program, so it is definitely on a first come, first serve basis.

Recently it was also announced by FHA that borrowers will be able to receive advances on the $8,000 tax credit through lenders. This means that borrowers will not have to wait until next year to receive the credit through the IRS. Of course, buyers will still need to provide the 3.5% down payment that is required by FHA, but the advance from the credit can be applied increase the down payment or may be applied to closing costs or other fees. Keep in mind that lenders are not necessarily required to participate in the program due to the fact that it does involve more work for them. For more information on First time homebuyer tax credit, please refer to IRS for more details.



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