Tax credits are the most effective incentives to taxpayers because they reduce taxes dollar for dollar. Some credits are even partially or fully refundable meaning they are payable in cash to the extent the credit exceeds one’s tax liability. We have previously discussed the benefits of individual tax credits such as the new credit for government retirees and the expanded credit for education called the American Opportunity Tax Credit. The Stimulus Plan also makes other personal tax credits more attractive.
The First-Time Homebuyer’s Credit has been increased, expanded, extended and generally made more attractive. The original credit provisions were enacted by Congress in July of 2008 entitling first-time homebuyers to claim a temporary, refundable credit equal to 10% of the cost of a principle residence purchased between April 9 and June 30 of 2008. The maximum credit was $7500 ($3750 for married filing separately filers) but phased out for higher income taxpayers. The original credit though was more of an interest free loan because it had to be paid back over 15 years. The credit in essence was not available to first-time District of Columbia home buyers if a separate lesser credit was allowable to such home buyers in the District. Finally, the credit was not available if the purchased residence was financed with a tax exempt mortgage revenue bond.
The new credit (as modified by the Stimulus Plan) is extended to homes purchased before December 1, 2009. The maximum credit is increased to $8,000 ($4,000 for married filing separately filers). The credit is expanded to include homes purchased in the District of Columbia and those financed with tax exempt mortgage revenue bonds. The credit is now more attractive because the rule requiring payback of the credit is eliminated unless the taxpayer disposes of the residence or ceases to use the property as a principal residence within 36 months of purchase. These changes to the credit apply to homes purchased after December 31 ,2008. Taxpayers can continue to claim the credit for a home purchased in 2009 in 2008 with an amended or extended return, subject to the new rules. The phase out of the credit where Modified Adjusted Gross income is between $75000 and $95,000 ($150,000 and $170,000 for joint filers) is unchanged. The definition of a first-time home buyer, someone who did not have an ownership interest in a principal residence in the prior 3 years, also remains unchanged..
The Earned Income Credit, which is a refundable credit available to low income workers is increased for taxpayers with 3 or more children and for all married taxpayers for 2009 and 2010. The Stimulus Plan also increases the refundable portion of the $1,000 Child Tax Credit for the years 2009 and 2010.
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