Coming up with money to buy a first home is brutally tough. This is particularly true with the current market which is such a nightmare. Fortunately, the government is helping people in addition to the banks.
The housing market is like the food system in the sea. You need plankton for bigger animals to survive. With real estate, you need first time buyers to fuel the market. They will buy, sell and move up, which fuels the market from the bottom up.
This process starts with first time homebuyers. They are critical to the system. Without them, there is nobody moving up from the bottom and the system will come to a grinding halt.
First time buyers are staying away from the current market. Regardless of all the other issues hurting this market, this is a giant problem. The government has acted swiftly to change things and get these buyers active again.
When the government wants to get serious, it can really do some amazing things. It is desperate now. How desperate? It is now offering first time homebuyers a tax credit in the amount of $7,500. This a huge figure if you understand tax credits.
Stop whining about tax deductions disappearing. Yes, they are valuable, but not like a tax credit. Tax deductions reduce your income and then taxes are figured based on the reduced amount. Tax credits reduce your taxes directly dollar for dollar.
Taxes can be mind numbing, so consider an example. I have a tax credit of $6,000. My accountant does my taxes and tells me I owe the IRS $3,000. Will I be writing the agency a check? Nope. When my tax credit is applied, they will be writing me a check for $3,000.
Can I actually get back more than I owe? Not always. With this first time homebuyers tax credit, however, I can. It is fully refundable, which means that it is not limited by the amount I owe the IRS.
When there is a big carrot, there is often a line tied to it. Sadly, this is the case here. The government is not giving away a freebie. You have to pay back the credit. You have 15 years to do it, which means about $40 bucks a month.
This tax credit has another catch. It phases out for those who make significant income. Married couples making a combined $150,000 cannot claim it. Other taxpayers lose it between $75,000 and $90,000 depending on certain factors.
You want help buying that first home? Well, the government is giving it to you. A $7,500 tax credit is going to be a huge help with your taxes, so make sure to make the appropriate adjustments to your paycheck and start house shopping.
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