Included in the federal stimulus legislation is a first time homebuyer tax credit. In a nutshell: citizens purchasing a home for the first time can receive a credit of up to 10% (or 8k) of the purchase price when they file their taxes.

Market Watch reports:

“In the earlier Senate version of the bill, the amount was $15,000 and included more types of buyers.
The tax credit is equal to 10% of the price of the home, up to $8,000. The home-buyer credit is reduced for taxpayers with adjusted gross income above $75,000 for single filers and $150,000 for joint filers.

One Wall Street analyst said the $8,000 tax credit “isn’t all that impressive” considering how fast home prices are falling.”

Unlike a tax deduction, this tax credit may result in a net gain for the home buyer. For example, if a buyer owes only $1,000 in taxes, he could receive up to $7,000 cash back from the government.

Borrowers using creative financing strategies such as seller financing or FHA loans will be able to qualify for the first time home buyer tax credit. However, the credit doesn’t make it any easier for people to get a mortgage in today’s tight market. It seems that if the government really wanted to encourage home buying, they would have allowed buyers to bring a smaller down payment to the closing table and would have given the “credit” to the seller at that time. Obviously, this would have been more difficult to set in place. But, it would have eased a market where buyers are struggling to meet down payment requirements.

Instead of an incentive to buy, it seems that the government is offering an after-the-fact award.

See Also:

FHA Loans with Low Down Payment Requirements

Tags | first time homebuyer tax credit, stimulus, tax, tax deduction