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Money Girl

110 MG Homebuyer Tax Credit ... or Loan?

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Broadcast on:
11 Feb 2009
Audio Format:
other

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Hello and welcome to Money Girl's Quick and Dirty Tips for a richer life. I'm your host, Laura Adams. This show is about a new and different type of tax credit that's available to certain first time home buyers. The IRS is offering a new tax credit but pay attention because it's a limited time offer. It applies to first time home purchases completed after April 8th of 2008 and before July 1st of 2009. The credit only applies to your primary residence, vacation homes, rental properties and homes outside the United States don't qualify. If you built a home the first date you occupied or will occupy the property is considered your purchase date. So if you have a qualifying new home or condo or planning to purchase one before July 1st don't miss out. Even though it's called the first time home buyer credit, guess what? You still qualify for it even if you've owned a home in the past. You actually qualify as a first-timer if you did not own a home for three years prior to making a purchase during the qualifying period. Again the qualifying period is from April 8th 2008 to July 1st 2009. Tax credits are great because they reduce your tax liability dollar for dollar. The first time home buyer credit is even refundable which means it increases any refund your owed. So you can take full advantage of this credit whether you owe tax or not. The credit must be claimed on IRS form 5405. You'll find a link to this document in the show notes at moneygirl.quickanddirtytips.com. You're allowed to claim a credit for 10% of the purchase price of a qualifying home. The maximum credit is $7,500 for taxpayers filing as singles, heads of household or married couples who file joint returns. For married people who file separate returns the maximum credit is $3,750. So if you bought a home for $75,000 or more you'll get to claim the full credit amount. But before you start dreaming about what you're going to buy with this hefty tax credit, here's the deal. It must be repaid to the government. You have to start repaying it in the second year after you claim the credit. It has to be paid back in equal installments over a 15 year period. So they probably should have called it the "haven't owned a home for three years home buyer federal loan" instead of the first time home buyer tax credit if you ask me. But hey, whatever it's called, who can knock an interest-free loan. Since 2012, Citi has been a proud partner of Global Citizen Festival using the power of music to inspire people to help end extreme poverty. Tune in on YouTube September 28 to get inspired, experienced performances from top artists and find out how you can join us in taking action. Together, we can make an impact for the love of making a difference, for the love of progress. Citi, visit globalcitizen.org/citi to learn more. September is a great month for planning. 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Go to policygenius.com or click the link in the description to get your free life insurance quotes and see how much you can save. That's policygenius.com. Now at T-Mobile, get four 5G phones on us and four lines for $25 a line per month when you switch with eligible traders. All on America's largest 5G network. Minimum of four lines for $25 per line per month without a paid discount using debit or bank account, $5 more per line without auto pay, plus taxes and fees and $10 device connection charge. Phone to be at 24 monthly bill credits for well-qualified customers, contact us before canceling entire accounts to continue bill credits or credit stop and balance on a required finance agreement to bill credits and if you pay off devices early, see T-Mobile.com. Here's an example of how the repayment would work. If you qualified a claim a credit of $7,500 for 2008, you would have to begin paying $1/15 of it back in 2010. This means you would add an additional tax of $500 on your tax return for each year from 2010 to 2024. There are some situations in which you'd have to pay back the entire tax credit balance all at once. If you sell the home or stop using it as your primary residence, all the remaining installments become due on that year's tax return. This would be the case if you decide to make the home a rental or vacation property, for example. If you sell it, the repayment amount may be altered or eliminated based on whether you gain or lose money on the deal. If you die, the remaining installments are only due if you have a surviving spouse and filed a joint tax return. There are limits placed on your income to be able to qualify for this credit. Your adjusted gross income must be lower than $170,000 if you're married and filing jointly. The credit is reduced if you earn between $150,000 and $170,000. For singles, heads of household and married filing separately, the upper income limit is $95,000. Your credit gets reduced if your income is between $75,000 and $95,000. If you and your home purchase were eligible for the credit in 2008, you must claim it on your 2008 tax return. But if your eligible purchase was or will be in 2009, you get to choose to claim it on your 2009 return or on your original or amended return for 2008. There may be an even more attractive home buyer tax credit coming soon. It's part of the economic stimulus package that's being considered right now. It would give all home buyers a true tax credit of 10% of the price of a primary residence up to $15,000. I'll keep you posted on this pending legislation. I'm glad you're listening. Cha-ching. That's all for now. Courtesy of MoneyGirl, your guide to a richer life. Get MoneyGirl and other great shows from Quick and Dirty Tips streamed to your iPhone. Download Stitcher free today at Stitcher.com. 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