Tax Tips
New Tax Breaks for Homeowners
Whether you are a first-time buyer or have lived in your house for years, don't overlook these new tax breaks.
By Mary Beth Franklin, Senior Editor, Kiplinger's Personal Finance
December 15, 2008
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Recent tax law changes give homebuyers and homeowners new ways to save on their 2008 taxes.
First-time buyers who purchase a house any time from April 9, 2008, through June 30, 2009, may be able to claim a tax credit of 10% of the purchase price up to a maximum $7,500. And you don't have to rush to close the deal before December 31. You can claim the credit on your 2008 taxes even if you buy a home during the first half of 2009. (But you may want to file an extension that gives you until October 15, 2009, to complete your 2008 return.)
The tax credit is actually a tax-free loan that has to be paid back in equal installments over 15 years. If you move before then, the loan repayment is due in full. And to qualify for the credit you must meet income eligibility requirements. Eligibility phases out for individuals with incomes between $75,000 and $95,000 and for married couples with incomes between $150,000 and $170,000.
Another new tax break allows homeowners who do not itemize their deductions to take advantage of an extra standard deduction of up to $500 for individuals and up to $1,000 for married couples. The bonus standard deduction, which is available for 2008 and 2009, is designed to offset the real estate taxes that you would be able to deduct if you itemized. That might be the case if you bought a home late in the year and haven't paid enough mortgage interest and taxes to make itemizing worthwhile, or if you don’t itemize because your home mortgage is paid off.
Homeowners whose down payment represents less than 20% of their home's purchase price are required to pay private mortgage insurance premiums. If you made PMI payments in 2008 and your income is $50,000 or less ($100,000 or less if you are married), you may deduct 100% of your premiums as long as you bought or refinanced your home since Jan. 1, 2007.
Congress also extended for two years through 2009 a tax credit of up to $5,000 for first-time home buyers who purchase a residence in the District of Columbia.
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Reader Comments (6)
Posted by: Eric J. Nisall at 12/17/2008 09:13:23 AM
The mortgage insurance premium deduction mentioned is not complete. You can only deduct the premiums on contracts that were signed after December 31, 2006 which was an important fact that was left out. Also what was not mentioned was the fact that any pre-payment cannot be deducted if that payment was allocated to future periods.
Posted by: PennySeeds.com at 12/25/2008 10:04:04 AM
I don't understand the purpose of getting a "credit" that's really a loan you have to pay back. If it's not mine to keep why would I bother? Just sounds like you've gotten into something you can't afford to me if you need this credit. If I could keep it then it would be another thing.
Posted by: Bill Kochis at 09/09/2009 12:14:36 PM
Suppose my sister and brother-in-law have tax in 2009 of $5,000, and they bought a house for $105,000. Would their tax credit be limited to $5,000 or would the IRS write them a check for $8,000?
Posted by: Andrew Rhodes III at 11/17/2009 11:35:53 PM
my mother bought a house and paid cash. she received money from the road home program to pay for the house, the previous house in which she lived was owned by my grandparents who are deceased. my mother lived there all her life, she is 75 years old and she on disability. Is she eligible for the first time home buyer tax break? thlis is the first time she has brought a home.
Posted by: Debbie at 01/09/2010 02:31:28 AM
I owned a home prior to my marriage, we lived in this home for 13 years, we did a quick deed and put my new husband on it. A little over a year ago we bought a house together, is this considered a first time home buyer tax break? Also do you think the standard deduction is a better route than to itemize in 2009?
Posted by: Donna at 01/28/2010 11:16:02 PM
I had bought a home May 13, 2009 and am on disibality. Where I pay no taxes on it. Do I still get the 10% back on my home?