Among the many changes that went into effect for 2008 tax year is a new tax credit for first-time home buyers and higher income and contribution limits for funding tax-deductible Individual Retirement Accounts and tax-free Roth IRAs.
In addition, there are also larger exemption levels to assist middle-class and upper-middle-income taxpayers avoid getting hit with higher taxes related to the dreaded Alternative Minimum Tax.
For first-time home buyers (including those who bought foreclosed homes) who purchased a primary residence after April 8 and before Dec. 31, 2008, can qualify for a tax credit equal to 10 percent of the purchase price, with a maximum credit of $7,500 available for either a married couple filing jointly or a single taxpayer, on 2008 returns.
Also, first-time home buyers who purchase a home between Jan. 1, 2009 and June 30, 2009, can now claim the credit on either of their 2008 or 2009 income tax returns.
Vacation homes and rental properties do not qualify for the credit, which was a provision of the Housing and Economic Recovery Act of 2008 passed during the summer. The phrase “first-time home buyer” is used quite loosely in that it applies to anyone who had not owned a home for at least three years prior to the purchase.
This point is important, so keep in mind that the credit is actually a no-interest loan that must be repaid over 15 years.
“You add that to your tax liability over the next 15 years. It sounds great, but it gets complicated,” said Jack Nuckolls, a national tax director with the San Francisco office of BDO Seidman LLP.
Despite the payback requirements, “If you are eligible, you would be crazy not to take it,” Nuckolls said.
To qualify for the credit, a married couple filing jointly can have modified adjusted gross income of no more than $170,000 (the credits starts phasing out at $150,000). Single taxpayers can have modified adjusted gross income of no more than $95,000 (the credit starts phasing out at $75,000).
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