Ins and Outs of Real Estate - So, What's the Big Deal with the $8,000 "First-Time" Homebuyer Tax Credit

Okay...what really is this credit and how does it work?

First off, let's be clear on what it really is.

This break is a tax credit...not a tax deduction. There is a big difference.

As a tax credit, the amount of taxes you owe is reduced by $8,000. If it were a tax deduction, it would only reduce your income by $8,000. So, the true tax break would only be a percentage of the $8,000. For example, if you are in a 35% tax bracket, the reduction would be $2,800.

So, how do you know if you are eligible for this break? How long has it been since you owned a home? If it has been more than 3 years, you may qualify for the credit, if you meet the income requirements.

Well, what if you qualify but your tax bill is less than $8,000? That's easy. You will get a refund for the difference between what you owe and the $8,000. Say you owe $5,000 in taxes. You would get a $3,000 tax refund.

In order to qualify for this tax incentive, you must purchase a home between January 1st and December 1st of this year. However, the tax credit can be claimed on either your 2008 or 2009 tax return.

There are a couple of other neat features of the tax credit that I'll cover in the next post. These features make the tax deduction even more attractive!

Stay tuned!

(Be sure to consult your accountant about this tax credit and other tax-related issues)