Housing Tax Credit Explained

Did you know you can get free government money for your home?

Part of the American Recovery and Reinvestment Act of 2008 included limited-time tax credits used to help Americans afford the dream of home ownership. A 2009 amendment extended these credits until April 2010, but there are other tax credits still available to military personnel, relocating government workers, energy-efficient remodelers and owners of low-income rental properties.

Housing Tax Credit For First-Time Homebuyers

First-time buyers saved $8,000.

The federal tax credit applies to all sales from January 1, 2009 to April 30, 2010. As long as a binding contract has been signed by April 30th, prospective buyers have until June 30, 2010 to complete the transaction. The $8,000 housing tax credit for "first-time buyers" -- people who have not owned a principal residence over the last three years -- gives new owners 10 percent of the home's purchase price or $8,000, whichever is less. The money is taken off their federal tax obligation once they file for the year. Some borrowers received a treasury check if they owed less than $8,000. When it was first passed, homeowners were allowed to borrow the money as a loan and pay it back over time. Yet, a later amendment said that buyers did not have to repay the loan as long as they used the property as their principal residence within three years after their purchase. To be eligible, the home's value must not exceed $800,000. Original income limits were $75,000 for single taxpayers and $150,000 for joint taxpayers, but as of November 6, 2009, these limits were increased to $125,000 for individuals and $225,000 for married couples.

Housing Tax Credit For Repeat Buyers

Previous homeowners received tax credits of $6,500.

The federal government issued a tax credit for repeat home buyers who may have lost a home due to foreclosure or who were struggling financially to escape their debt-rent cycle. A $6,500 tax credit applies to home purchase contracts for $800,000 or less issued from November 6, 2009 - April 30, 2010. Eligible buyers lived in their previous residences for five consecutive years out of eight and are looking for a home as their principal residence. Income limits are $125,000 for individuals and $225,000 for married couples. Like the other tax credit, buyers will receive 10 percent of the home's purchase price or $6,500, whichever is less. Buyers will receive this money off their annual tax bill or they may receive a check if they owe less than $6,500 for the year.

Housing Tax Credit For Armed Forces And Government Employees

Military and government workers are still eligible for $8,000 or $6,500.

The law allows special considerations for members of the military, the foreign service or the government intelligence community, given the unique challenges they face. These individuals do not need to use the home as their principal residence within three years of their initial purchase if their service requires them to live elsewhere. The typical tax credit deadline is on purchases on or before April 30, 2010, but qualified service members on extended duty have until April 30, 2011 to sign a binding sales contract and June 30, 2011 to close the deal. Military members who have returned to America on medical leave after completing an overseas assignment of 90 days or more are also eligible for the one-year extension.

Housing Tax Credit For Low Income Families

Developers of low-income housing can save 9 percent.

The Low-Income Housing Tax Credit allows owners of a property a federal tax credit to help subsidize the cost of developing low-income rental units. Typically, the property developer will propose a subsidized housing project to a state agency who will determine whether or not the project is eligible for tax credits. Rents will be determined based on a certain percentage of the median market value for that particular location. Once the project is completed, the property becomes open for low-income tenants, often referred by the US Department of Housing & Urban Development. The credit fluctuates depending on the total cost of development and the number of low-income units offered. Investors can save up to 9 percent of their construction costs for 10 years.

Housing Tax Credit For Energy-Efficient Remodeling

Taxpayers can still save 30 percent on home energy upgrades.

Homeowners who wish to remodel their homes to be more energy efficient can also save money on their taxes. Until December 31, 2010, taxpayers will receive a credit for 30 percent of the total cost up to $1,500 on biomass stoves, heating/ventilation/air conditioning units, insulation, metal or asphalt roofs, water heaters, windows and doors. Until December 31, 2016, taxpayers will receive a credit of 30 percent with no upper limit on all geothermal heat pumps, small residential wind turbines and solar energy systems installed. Also until December 31, 2016, they will receive 30 percent of the cost up to $500 per 0.5 kilowatt of power capacity on all installed fuel cells.
The only catch is that it must be the homeowners' existing home and principal residence. Rentals and new construction units do not qualify.

References

• Federal Housing Tax Credit: First-Time Buyer FAQ
• Federal Housing Tax Credit: Repeat Buyer FAQ
• Federal Housing Tax Credit: Military/Service Rules

Resources

• Energy Star: Tax Credits
• Database of State Incentives for Renewables and Efficiency (DSIRE): State Energy Credits