With one stroke of his pen, President Barack Obama signed into law the massive $787 billion stimulus package on February 17, 2009. Many first-time home buyers will now be able to claim a tax credit of up to $8,000 for buying and closing on a home by December 1, 2009. Though the government cost of the program of $3.7 billion is less than 1 percent of the overall stimulus package and may appear to be a minuscule benefit at first glance, the impact will be widely felt among consumers who are in the market to purchase a home. (Note: Much of the stimulus package goes out broadly to the population in the form of tax cuts and unemployment/health care spending with no specific industry benefitting directly.)
The $8,000 tax credit is a “clean” refundable credit, unlike the one that was passed last summer. The $7,500 tax credit made available last summer was not a true credit, as it required repaying the credit back to the government over a period of time. Under the latest tax credit, qualifying first-time buyers (i.e., have not been a homeowner in the past 3 years), can claim the $8,000 to reduce their tax burden. If the $8,000 is greater than the tax paid, then they will receive a refund check for the difference. (Example: You owe $2,000 in taxes on April 15, 2010. If you purchased a home before the stimulus expiration, you will receive a tax refund check for $6,000 from the IRS.) It is recommended that you consult with a tax professional, as individual variations will apply.
The current $8,000 tax credit is expected to boost home sales by 300,000 from first-time home buyers in 2009, which will further trigger trade-up purchases. Home buyers requiring mortgages must still meet the current market qualifying standards. Those who might not qualify, or those who are not financially prepared to assume the responsibility of homeownership should not enter the market.