The 2008 tax credit was essentially an interest-free loan equal to 10% of the purchase of any home (up to a maximum purchase price of $75,000) by first-time home buyers. The provision applied to homes purchased between April 9, 2008 and July 1, 2009. (Now ended December 31, 2008 ... see below).
Homes purchased in 2008 must follow the guidelines of the 2008 Act.
NEW 2009 - 2010 Tax credit plan (November, 2009 to April 30, 2010)
In November of 2009 the original 2009 plan was both extended and amended to include a tax credit plan for all homebuyers. The homebuyer tax credit expansion measure includes these provisions:
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The American Recovery and Reinvestment Act of 2009 includes a provision for qualified first-time U.S. homebuyers to receive a tax credit of up to $8,000. In November 2009, the provision’s deadline was extended and the credit was expanded to give most other homebuyers a tax credit of up to $6,500.
The credit amounts to 10 percent of the purchase price up to the credit limit. So a home purchase of $80,000 or more would be good for the full $8,000 credit for "first-time" buyers; and a home purchase of $65,000 or more would be good for the full $6,500 credit for qualifying "repeat" buyers. No credit is available for home purchases that exceed $800,000.
The credit never has to be repaid, provided that the buyer continues to own and live in the home as a principal residence for a minimum of three years straight. Under the deadlines revised in November, buyers must have a written, binding contract in place before May 1, 2010 and close before July 1, 2010.
Note: As with any tax legislation, the details can quickly become complex with individual filers’ unique situations. We encourage you to confirm your eligibility and pursue your filing questions directly with the IRS or your own tax professional.
Otherwise qualifying military personnel and certain other federal workers on extended duty outside the United States have an extra year to buy a principal residence. There also are repayment exemptions if the requirement to own and live in the purchased property for three years is not met because of extended-duty orders. Here are more details from NAR.
Some lenders, non-profits and state housing agencies offer bridge loans that enable buyers to borrow against the tax credit to help with a down payment or closing costs. Even FHA-insured mortgages can be linked to such programs. Options for turning the credit into cash vary widely. Costs vary, too. Here’s basic information about the FHA program.
How can that be? Well, only deductions in excess of the standard allowable deductions you've already been taking will come into play. In our example that would be about $5,000 for married individuals filing jointly. However, now that you're able to itemize because of the large property tax and interest deduction, other allowable deductions that were of no consequence when you took the standard deduction, can be used to further enhance your total deductible amount. You can now itemize charitable contributions, certain medical expenses, home office expenses, and the like. It can quickly add up! If your vigilant, and keep good records, your tax savings can be considerable.
You also can deduct any points you pay when you refinance your home, but you must do so proportionally over the life of the loan. Consult your tax or financial advisor.
There also are a number of economic considerations. Unlike renters, home owners who secure a fixed-rate loan can lock in their monthly housing costs and make prudent investment plans knowing these expenses will not increase substantially.
Home ownership is a highly leveraged investment (small up front investment controls a large ultimate profit.) that can yield substantial profit on a nominal front-end investment. However, such returns depend on home-price appreciation.
Mitchell A. Levy in his book, "Home Ownership: The American Myth," Myth Breakers Press, Cupertino, Calif.; 1993 offers an opposing view with which not all experts agree, "For some people, owning a home is a great feeling," writes Levy. "It does, however, have a price. Besides the maintenance headache, the amount of after-tax money paid to the lender is usually greater than the amount of money otherwise paid in rent," Levy concludes.
David T. Schumacher and Erik Page Bucy offer a different opinion for evaluating the risk associated with home ownership in their book "The Buy & Hold Real Estate Strategy," John Wiley & Sons, New York; 1992, "Good property located in growth areas should be regarded as an investment as opposed to a speculation or gamble."
These authors recommend that prospective buyers spend a few months investigating a community. Many people make the mistake of buying in the wrong area. They write, "Just because certain properties are high-priced doesn't necessarily mean they have some inherent advantage. One property may cost more than another today, but will it still be worth more down the line?"
As you can see, homeownership isn't for everybody and sometimes renting can be the more prudent venue. OurValleyHomes' "Rent vs. Buy Calculator" will point you in the right direction in choosing whether you are better off renting or owning your home.