First-time homebuyers will benefit from tax credit |

First-time homebuyers will benefit from tax credit

VAIL, Colorado ” As part of the government’s continuing efforts to stimulate the housing market, there is a good incentive for first-time buyers to make the move soon. That is no more important than here, in Vail, Colorado.

Those who are first-time buyers or who have not owned a home in the last three years are eligible for a one-time $7,500 tax credit on their federal taxes if they meet certain requirements.

A tax credit is different from a tax deduction. A tax deduction is an amount that you deduct from your income prior to calculating your taxes. Common tax deductions are excessive medical expenses, property taxes and mortgage interest. Tax deductions lower your taxable income, resulting in less tax.

A tax credit is applied to what you owe after your deductions. If you owe $8,000 in federal taxes and get a $7,500 tax credit you would only owe $500 in taxes If you only owed $5,000 in taxes you would get a $2,500 refund. Keep in mind you only get this once, and you must purchase your home by July 1, 2009.

But this is not totally free money; you do have to pay it back in time. Starting in the second tax year after you take the credit (meaning in 2010 if you take it in 2008) you have to pay back the credit at the rate of $500 per year for the next 15 years. In reality it is an interest-free loan and is an incentive for the first-time homebuyer to make the plunge. The theory is that every sale generated under this program will also generate another sale as the seller moves onto another property.

Also, you can’t use this tax credit as part of your downpayment; it will, however, save you some serious money come tax day. You can also ratchet up your withholding exemptions at work so you have less money withheld, knowing you will owe less on April 15, just be sure to readjust those to the normal level on Jan. 1, so that the following year you haven’t underpaid. And keep in mind this doesn’t impact your state taxes.

There is an income restriction that could reduce the tax credit or exclude some buyers. If you are single and make over $75,000 a year or are married and make over $150,000 a year your credit would be phased out depending on your income.

Combine this with other first-time homebuyer incentives out there such as the Eagle County downpayment assistance program, plus the large inventory of homes for sale and flat real estate prices ” and it makes more and more sense to make the jump from renting to owning.

Over the 46 years of Vail’s history we have had recessions, double-digit interest rates and double-digit unemployment, years with no snow, years with too much snow, terrorist attacks and good years and bad. Always we have endured and recovered and real estate has never succumbed or seen a prolonged decline. I am confident that those who buy now and plan to hold for a few years will see the economy rebound and prosper from their investment. Mortgage rates are still low and while getting a loan is tougher, it often can be done.

Chris Neuswanger is a loan originator with Macro Financial Group in Avon and can be reached at 970-748-0342. He welcomes mortgage-related inquiries from readers.

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