Update: The $8,000 First Time Home Buyer Tax Credit Extended the deadline until June 30, 2010. In addition, it will now include a $6,500 Home Buyer Tax Credit for Existing Homeowners.

We finally have an enhanced first time home buyer tax credit! The President signed the Economic Stimulus Bill Tuesday, which includes a $8,000 tax credit for first time home buyers.

$8,000 First Time Home Buyer Tax Credit

Even though the $15,000 Home Buyer Tax Credit was proposed, it was cut back in negotiations.

The good news for home buyers, is that unlike last year’s $7,500 First Time Home Buyer Tax Credit, the 2009 home buyer tax credit doesn’t need to be paid back!

Here is additional information on the credit:

• It applies to homes purchased January 1, 2009 through November 30, 2009.
• You must keep the home for three years.
• The credit is for $8,000 or 10% of the home’s value, whichever is less.
• The credit is refundable.
• You cannot have owned a home for the past 3 years.
• It phases out for incomes between $75,000 to $95,000 for single and $150,000 to $170,000 for couples.

How to File for Your Home Buyer Tax Credit

A reader, Yvette, asked the following question:

Since the stimulus package was signed, when and where can I find the details for the $8,000 home buyer tax credit? We are in escrow now hoping to close by the end of this month and are holding off on filing our taxes because we would like to file the house for 2008. Also, do the tax software packages get updated with that info? Or that box for a tax credit?

In the original bill, you could elect to treat the $7,500 loan for a 2009 purchase on your 2008 taxes. According to the new 2009 bill, you can still make the election on your 2008 taxes. If you do this, you still will not have to repay it, if your purchase occurs during 2009.

I checked my version of TaxCut yesterday, but haven’t seen any updates yet. I also haven’t seen any memos from the IRS yet.

In the past, in this type of situation the IRS usually updates the affected forms (Form 5405 is where you claim the credit), and the tax software packages follow soon after. However, we’ll have to wait to see how they decide to handle the increase to $8,000.

Otherwise, if you are really anxious, you could just claim the $7,500 on your taxes, and make an amendment for the other $500 once the forms are available.

Update: For instructions on how to get your tax credit, including the form to file with your taxes and what documentation you need to include, see How to Claim Your Home Buyer Tax Credit.

More Details

You can read the full text of the economic stimulus bill, called the “American Recovery and Reinvestment Act of 2009” on the White House’s site. The $8,000 home buyer tax credit is in section 1006 in the first and second files.

In addition, the President is planning more relief for homeowners and the housing market in the “Making Home Affordable Program.”

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Update: The $15,000 home buyer tax credit was eliminated in the compromised bill. It’s now an $8,000 First Time Home Buyer Tax Credit.

A reader, Keith, left the following comment about the $7500 First Time Home Buyer Tax Credit:

I just read that the $7500 home buyer tax credit is going to be jumping up to $15000. I wish I was buying a house this year!!!

Good catch Keith! The Senate voted yesterday to expand the $900 billion economic stimulus package to include the $15,000 home buyer tax credit. Here are some of the key points of the tax credit.

$15,000 Home Buyer Tax Credit

• The tax credit is for 10% of the purchase price of a primary residence up to $15,000.
• It will be for homes bought within one year of the date of the enactment.
• The tax credit would be available to all home buyers, unlike the $7500 home buyer tax credit, which is only available to first time home buyers.
• It would not have to be repaid as long as a buyer lives in the house for at least two years.
• The idea came from a similar successful tax credit in the 1970s.

We’ll have to stay tuned to see what happens next! If you are in the market to buy a house, this could be a terrific help!

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Zecco Price Changes

Just as I was exploring my options for a new brokerage, including TradeKing and Sharebuilder, Zecco changed the rules. I was excited to try out Zecco because they used to offer free trades. However, I got this email from Zecco last week:

As of March 1st, 2009, we’re increasing the minimum level of assets needed to earn 10 free trades per month to $25,000. At the same time, we’re adding a new way to get free trades: customers who make at least 25 total trades per month will also qualify for 10 free stock trades per month.

I’ll still take them for a test drive, because even if you have to pay for the trades, they’re still only $4.50 per trade…. still pretty cheap. Just not free.

Enhancing the $7500 First Time Home Buyer Credit

I wrote about the $7500 First Time Home Buyer Tax Credit, which was actually a loan, last fall. Last week, one of the provisions of the proposed economic stimulus bill will change that loan to an actual credit. However, it will only apply to houses bought in 2009. I mentioned a CNN story with more details on Twitter.

Now, onto my favorite personal finance articles of the week…

By the Numbers

• 5 Mistakes You Can’t Afford to Make When Buying a Car
• 10 Ways to Save on Travel
• 10 Tips to Save Money Around the Home
• 5 Simple Yet Often Overlooked Ways To Spend Less Money
• 6 Reasons Why Recessions are a Good Thing!
• 10 Ways College Made Me Rich

How To

• How To Make A Budget In 10 Easy Steps
• How to Negotiate A Severance Package
• How to check out a hoax
• How To Walk On Water

And More!

• Insurance Policies 101 – Understanding Insurance Policies and Claims
• Carnival of Personal Finance 190: Buddy, Can You Spare a Dime?
• How Much Does It Cost In Life Energy?
• Where You Shop Could Hurt Your Credit Score and Credit Limits
• What Was the First Piece of Financial Advice You Ever Received?

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UPDATE: $15,000 Home Buyer Tax Credit possible! Congress passed an $8,000 First Time Home Buyer Tax Credit for 2009. The $7,500 tax credit outlined below will still apply to homes purchased in 2008.

UPDATE 2: The $8,000 First Time Home Buyer Tax Credit Extended the deadline until June 30, 2010. In addition, it will now include a $6,500 Home Buyer Tax Credit for Existing Homeowners.

$7500 Tax Credit. Why are they calling this a tax credit? Have you heard about the new $7500 tax credit for first time home buyers? It’s not a credit at all, it’s a loan! Granted it’s a 0% interest loan, but it’s still a loan. Let’s call it what it is!

$7,500 Interest Free Loan for First Time Home Buyers

A reader that signed up for the Accountants World Daily Newsletter when I suggested the free magazines, sent me the following article: New Tax Credit Can Help Americans Build Long Term Wealth, According to NAHB.

I was skimming it and realized that this is NOT tax credit! Now that we know what it is, let’s look at the details.

What Is It?

It’s a 15 year 0% interest free loan from the government. It’s only called a tax credit because the IRS is handling the distribution of the money. The money will be given to you via a tax credit. You will then repay the loan over the next 15 years through increased taxes.

How Much Is It?

• You can receive 10% of the purchase price of your home, capped at $7,500.
• Income phaseouts to qualify for the entire amount are $75,000 for single filers and $150,000 for married filing joint. Partial credits are available up to $95,000 for single and $170,000 for married.
• It’s refundable, so if your tax liability is less than the credit, you can get the money back.

Who Can Use It?

First time home buyers (a buyer who has not owned a principal residence during the prior 3 year period). For married couples, both of you must be first-time home buyers. The home can also include townhouses, condos, mobile home and houseboats.

How Does It Work?

Purchase your home between April 9, 2008 and before July 1, 2009. (If you build your house, the occupancy date must fall between those dates.) Claim the credit when you file your tax return.

You can claim your First Time Home Buyer Credit on Form 5405. I did a trial entry using TaxCut and it was simple. You just enter your address, date acquired, and purchase price. TaxCut calculates how much of the credit you are eligible for and shows you the payback schedule.

Payback Terms

The credit must be paid back evenly over 15 years ($500 per year for the full amount), beginning 2 years later. If you sell your home before the 15 years are up, you will owe the rest in the year of the sale from the capital gains on the home sale. If there are no gains on the sale, you will not have to repay the rest of the loan.

Special Provision for 2009 Purchases

If your home purchase is in 2009, you can choose to use your income in either 2008 or 2009 to take advantage of whichever year will yield a larger credit. You can also claim it on your 2008 return to get the money sooner.

Should You Use It?

I have no problem with the government giving interest free loans. However, I want everyone to know that is exactly what it is. It is not a tax credit; it is a loan. If you are disciplined and can take the money and put it in a high-yield savings account for 15 years it’s a great source of arbitrage. If you would just spend the money, you may want to skip it and save yourself the trouble.

Article included in Carnival of Personal Finance at BankerGirl.

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