Understanding housing tax credits
By now, most readers are familiar with the First Time Homebuyer’s Credit that was available in 2009. This credit was extended back in November to make an $8,000 tax credit available through April to those who have not owned a home in the last three years.
That includes folks who lost a home in a divorce, provided they have been renting (or living with parents, partners or friends) for more than three years. Or maybe you sold a home three years ago and have been renting since then.
In either case, even though you may have owned a home previously, you could still be eligible for the credit.
The current deadline is that you must have a house under contract no later than April 30, 2010, and financing closed within 60 days after that. If you qualify and meet the deadlines, the federal government offers you an $8,000 credit to apply against your taxes.
If you do not owe $8,000, you will receive the balance in cash – a stimulus check mailed directly to you. This only applies to owner-occupied homes, not investment properties, and you must live in the home you purchase for at least three years or you could be required to repay a portion of the credit.
One weakness of the original tax credit that expired Nov. 30, 2009, is that while it did a great job helping out first-time buyers, it didn’t do a lot for others who might be looking to make a move.
That weakness has been addressed with the $6,500 Repeat Buyer Tax Credit introduced in November 2009.
The Repeat Buyer Tax Credit applies to you if you have owned a home for five consecutive years out of the last eight, but are planning to move up, down or across. It can potentially be used either to add to your real estate holdings (if you don’t sell your current home), sell your current home and downsize, or move up to a bigger or better home.
This credit is intended for purchase of a primary residence, but the guidelines allow you to keep the home you’re in, so it can also be used to increase your real estate holdings by converting the home in which you currently reside to a rental property.
Between these two tax credits, almost everyone who is financially able to buy a home can take advantage of this government stimulus. Whether you’re a current homeowner or first-time buyer, this is the best market we’ve seen for buyers in years – the inventory of available homes is still high (although, beginning to decrease – a sign of a recovering market), prices are lower than they have been in six years or more, tax incentives are plentiful, and interest rates continue at historic lows. Calling it a buyer’s market barely scratches the surface.
If you are in a place with a steady job and income, good credit and want to set down roots, now is the time. We’ve all heard of those folks who today are millionaires because they had the foresight and ability to buy the right properties when that storied billboard went up back in the 1970s.
Unlike then, our economy is recovering quickly – it seems unlikely that “the last person out of Seattle” will need to turn out the lights. In fact, our Puget Sound economy already seems to be recovering.
In January, NWMLS reported sales up over 28 percent compared to a year ago, and we are beginning to see year-over-year price increases in North King and several in-city Seattle market areas.
If this trend continues, it is reasonable to expect that it won’t be long before we see the trend spread here to Mukilteo.
Owning your own home will always be the soundest of your investments: there’s no stock or bond that shelters your hopes, your dreams, your family’s happiness and well being better than your home. Talk to a realtor soon, and let us help you turn your dreams into reality.