Uncle Sam Offers Huge Credit For First Time Home Buyers

According to the National Association of Realtors 41 percent of all home buyers are first timers. That’s an interesting statistic when you consider that Uncle Sam is now giving away an $8,000 tax credit for new buyers who purchase between now and December 1, 2009.

If this sounds familiar it is, sort of. Last year you might have heard about a $7,500 federal tax “credit” for first-time home buyers, but the deal was more of a cash advance: In basic terms the idea was that a first-time buyer could get a $7,500 credit, money that had to be repaid to the government when the property was sold or at the rate of $500 a year starting in 2010.

This time around the deal is different — and better. Why? First, you can get a tax credit worth up to $8,000. Second, if you qualify for the program and hold onto the property for three years you don’t have to repay the $8,000.

Yup. You can get $8,000 from Uncle Sam. Add in the ability to write off mortgage interest and principal and 2009 will be a very good year, tax-wise, for a lot of people.

How important is this tax credit?

Consider this: How much would you need in the way of a money market account, CD, savings account or IRA to earn $8,000 — after taxes?

And, here’s another biggie: The is a tax credit, not an income deduction. The difference is huge.

Imagine that you can write off $8,000 from your income because of, say, a deduction for mortgage interest. If 25 percent of your income goes to federal taxes you save $2,000.

If you have an $8,000 tax credit then your taxes are reduced by the entire $8,000.

Under the 2009 plan, if your taxes are less than $8,000 you’re still ahead because Uncle Sam sends you the difference between your tax bill and $8,000.

You can get more information by looking at the rules and requirements laid out in IRS Form 5405. Also, be sure to check with a tax professional before entering the marketplace.