The time to act is now

The $8,000 federal tax credit for first-time home buyers is set to expire Nov. 30. In fact, the Internal Revenue Service recently reminded potential first-time home buyers that they must complete their first-time home purchases before Dec. 1 to qualify for this special credit, which means the last day to close on a home and qualify for the credit is Nov. 30. In other words, if you are thinking of buying your first home, there are 8,000 good reasons to do it now.

Since its inception earlier this year, the tax credit has brought 1.4 million new buyers into the market and home sales have been on the rise for seven months in a row nationwide, according to the National Association of Realtors. In California, nearly 40 percent of first-time home buyers reported they would not have purchased a home without the tax credit.

It’s important to remember that the $8,000 tax credit is just that — a tax credit. It’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if you were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, you would owe nothing.

Better still, the incentive is refundable, which means you can receive a check for the credit even if you have little income tax liability. For example, if you’re liable for $4,000 in income tax, you can offset that $4,000 with half of the tax incentive and still receive a check for the remaining $4,000.

The $8,000 incentive starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000, and is phased out completely at incomes of $170,000 for couples and $95,000 for single filers. The difference of $20,000 before the income phase out allows home buyers to take a portion of the credit. Here is an example from the National Association of Homebuilders: an individual homebuyer has a modified adjusted gross income of $88,000. The buyer’s income exceeds $75,000 by $13,000. Dividing $13,000 by the $20,000 difference yields .65. When you subtract .65 from 1.0, the result is .35. Multiplying $8,000 by .35 shows that the buyer is eligible to reduce the tax liability by $2,800. Remember, these are general examples. Borrowers should consult a tax advisor to provide guidance relevant to their specific circumstances.

The tax credit is applicable to any home that will be used as a principal residence. You cannot use the tax credit to purchase income or investment property. Buyers will have to repay the credit if they sell their homes within three years.

With the tax credit expiring on Nov. 30, a key issue on the table is the proposed expansion of the tax credit submitted by Georgia Senator Johnny Isakson as an amendment to the original bill passed earlier this year as part of the economic stimulus package. The proposal will change the original credit terms in a couple of very important ways: increase the amount to $15,000 (or 10 percent of the home’s price tag, whichever is less) and be available to anyone (not just first-time homebuyers) buying a primary residence during a one-year period beginning on the date of enactment. The credit would still not be available to investors or people buying income property.

We feel it is our job to keep you abreast of any and all changes happening in the financial and housing markets. The extension and expansion of the homebuyer tax credit is something that we feel deserves your attention. We support an extension and expansion of the federal tax credit through 2010 and to include all home buyers, not just first-timers. Historically, housing has led the nation out of economic downturns. We feel it can do so again.

Most importantly we are asking you to get involved. If you could benefit from the homebuyer tax credit, have already done so, or know someone who has, then take action by getting in touch with your congressperson. For more information, visit www.takeaction.realtoractioncenter.com/campaign/hbtc/w6nexgg42j3tbket?

(Robert Ramirez is a Realtor and broker associate with Coldwell Banker of Petaluma. He can be reached at 762-5611.)