First Time Homebuyer Tax Credit

Income Limits: If you are not sure if you can take advantage of the $8,000 tax incentive, here are some examples to help you better understand the income limits and phase-out structure.

The $8,000 incentive starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000 and is phased out completely at incomes of $170,000 for couples and $95,000 for single filers.

To break down what this phase-out means, the National Association of Homebuilders (NAHB) offers the following examples:

Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out threshold is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer incentive to this couple, multiply $8,000 by 0.5. The result is $4,000.

Example 2: Assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer's income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible to reduce the tax liability by $2,800. (Source: MMG Weekly)

USDA Financing: For the year 2009 you are still eligible for the tax credit if you finance your home purchase from tax-exempt mortgage revenue bonds. This is not the case if you purchase in 2008. (Source: IRS, form 5405)

Home Acquisition: You will not be eligible to receive the tax credit if you acquire your home by gift, inheritance or a related person. A related person includes your spouse, ancestors (children, grandchildren, etc.), a corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation or a partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest. (Source: IRS, form 5405)

Work for Pay Tax Credit

This should mean $400 to $800 for many of you starting this Spring. For people who receive a paycheck and are subject to withholding, the credit will typically be handled by their employers through automated withholding changes in early spring. These changes may result in an increase in take-home pay. It is not necessary to submit a Form W-4 to get the automatic withholding change.  However, an employee with multiple jobs or married couples whose combined incomes place them in a higher tax bracket may elect to submit a revised W-4 to ensure enough withholding is held to cover the tax for his or her combined income. (Source: IRS)

Economic Recovery Payment

This is $250 for Social Security Recipients, Veterans and Railroad Retires. The IRS will not be issuing the payment. If you feel you should be receiving this credit, please contact the Social Security Administration, Department of Veterans Affairs or the Railroad Retirement Board. Please keep in mind this amount will get deducted from any Work for Pay Tax Credit in which you qualify. (Source: IRS)

Sales Tax Deduction for New Vehicles

Purchases of new cars, light trucks, motor homes and motorcycles made between February 17, 2009 and December 31, 2009 may be eligible to deduct state and local sales and excise taxes paid. The deduction is limited to the tax on the purchase price up to $49,500 of an eligible vehicle and does have income limits. You do not have to itemize on Schedule A in order to take this deduction. (Source: IRS)

Go to IRS.GOV for additional information on any of the tax credits I mentioned in this blog. And remember, you should consult a tax advisor to provide guidance relevant to your specific circumstances. 

Thank you for your great questions! - Denelle