Friday focus: Personal finance
First-time home buyers could save good money on their 2008 income taxes, maybe enough to buy furniture, but they must wade through confusing tax breaks.
The tax deals apply for first-time buyers who bought a house in 2008 or buy one this year before Dec. 1.
For ’08 first-time buyers, only one type of credit could apply. Yet if you buy a home this year before Dec. 1, you could use another break on the 2008 or 2009 return.
If you bought in 2008, know that the first-time buyer credit must be repaid.
“It’s very much like a tax-free loan,” said Mark Luscombe, principal analyst for CCH in Riverwoods, Ill.
The credit could apply if you bought the house after April 8, 2008, and before Dec. 31, 2008. Vacation homes don’t qualify.
A first-time home buyer is someone who has not owned a home within the last three years.
The credit amounts to 10 percent of the purchase price, up to a credit of $7,500 for either a single taxpayer or a married couple filing a joint return. The maximum credit is $3,750 for married persons filing separate returns.
If you claimed the $7,500 maximum on your 2008 federal return, you must begin repaying the credit on the 2010 return. Typically, $500 will be due each year through 2024.
For a married couple filing a joint return, the credit begins to phase out at $150,000 of modified adjusted gross income and is eliminated at $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.
Some restrictions apply.
To add to the confusion and, yes, generate home sales, the American Recovery and Reinvestment Act of 2009 expanded the First-Time Homebuyer Credit.
The new credit is worth up to $8,000. Even better, you do not have to repay this new credit if the house remains your main home for 36 months.
The first-time buyer could claim 10 percent of the purchase price up to $8,000 for either a single or married couple filing a joint return, or up to $4,000 for married individuals filing separately.
If a married couple filing a joint return bought a $50,000 home, the credit could be up to $5,000.
See revised Form 5405 at www.irs.gov.
Detroit Free Press