Wednesday, August 19, 2009

What is a tax credit, anyway?

You have probably heard about the $8,000 tax credit the federal government is offering first-time home buyers. The $8K part is easy enough to understand, but you may be wondering, 'what is a tax credit and how does it benefit me?'

Here's how it works. Next year, prepare your federal income tax return as usual. Then, take a look at the bottom line that says how much you owe. If you owe money, you get to deduct up to $8,000. For example,
> If you owe $10,000 in taxes, and qualify for the tax credit, you would deduct $8,000 from that $10,000 so you would owe just $2,000.
> If you owe $6,000 before applying the credit, you would not owe anything AND you would GET BACK a check for $2,000.
> If you owe nothing, you will get back a check for up to $8,000 to spend any way you wish.

> be a first-time home buyer, which means you cannot have owned any interest in a home in the past three years
> CLOSE the purchase of a home valued at $80,000 or more (that's pretty much every home on the market) before DEC. 1st, 2008. Since it typically takes about 60 days to find and purchase a home, you should start looking by October 1st.
> earn an adjusted gross income of no more than $75,000 per year for individuals or $150,000 per year for married couples.

Need more information without any hassle or pressure? Call me at 206-708-9800.

No comments: