Can Obama’s Stimulus Plan Help Homebuyers?

By Joel Persinger
YourRealEstateDude.com
February 23, 2009

There’s quite a buzz among real estate folks and the media regarding the new Obama stimulus plan and how it might help home buyers. One of the items most talked about around the water cooler in my office, is the $8,000 tax credit. But, before I get into the specifics of how this tax credit is suppose to work, let me remind you that the actual stimulus plan probably weighs ten pounds when printed and won’t be fully understood for many months, if ever! Consequently, anything I tell you now will only paint a small part of the picture.

In basic, the new law says that first time homebuyers who purchase homes anytime from the start of this year until the end of November 2009, may be eligible for a tax credit. The credit could be as much as $8,000, but not more. This is a tax credit, rather than down payment assistance. So you have to come up with your own down payment. Then once you have completed the purchase, you can apply for the credit when you file your tax return at the end of the year.

The benefit of a tax credit is that it is a dollar-for-dollar reduction in the actual taxes you owe, rather than a reduction in your taxable income. Reducing your taxable income by $8,000 might only save you $1,000 to $1,500 in your actual taxes. On the other hand, a credit is real money that goes toward your actual tax bill. So, if you were to owe $8,000 in income taxes and qualified for the $8,000 tax credit, you would owe nothing. Better yet, the tax credit is real money. That means that you can receive a check for all or part of the credit, depending upon your tax liability. For example, if you end up owing $4,000 in taxes, you can offset that $4,000 with half of the tax credit and still receive a check for the other $4,000!

This may sound great, but it doesn’t apply to just anybody. You must either be a first time homebuyer or someone who has NOT owned a home during the past three years. Additionally, the program phases out as your income increases. According to the reports I’ve read so far, the phase out begins when couples make more than $150,000 per year or when single borrowers make more than $75,000 annually. Once you hit either of those income limits, figuring out what credit you are eligible for, if any, may require a degree in either accounting or rocket science. My advice is, speak to your accountant… even if you’re a rocket scientist.

How much this program will actually help home buyers remains to be seen. But, if you’re a first time buyer, it certainly is worth checking out. Just make sure you get good advice from qualified professionals along the way.