Breaking Down the IRS First-Time Homebuyer Tax Credit

With the economy in trouble and the housing market tarnished, the Feds are are once again toiling with the market. In 2009, with the American Recovery and Reinvestment act provided new home buyers’ with an $8000 dollar tax credit if they purchased their home before December 1st. Now Congress extended that tax credit to contracts signed before April 30th, 2010.

In clarifying, any individual who has not owned a home in the past three years or is purchasing a home for the first time may qualify. Moreover, any home buyer who is looking to move to a better home and has at least lived in their house for 5 years may qualify for a $6,500 tax credit. The bad news is that if you make more than $125,000 or $225,000 (filing jointly) your tax credit starts to dwindle, becoming $0 once you make $145,000 or $275,000 (filing jointly).

These tax credits seem great as they are provide incentives to buyers which ultimately keeps realtors busy and home builders hopeful. However, what many fail to realize is that these tax credits push up the price of houses ultimately. A seller can know get $6,500 to 8,000 more for a home because buyers’ have this tax credit. So in essence, many buyers who do not meet the qualifications of the tax credit face higher housing prices that would ultimately be lower. For some reason, Washington believes that higher prices are always a good thing and therefore has decided to prop up the housing market. The other thing Washington failed to realize is the amount of taxes that will be forgone due to this tax credit.

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4. Don’t Forget to Take Advantage of the American Opportunity Tax Credit
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