How does this affect us here in Auburn?  One of the incentives is for first time home buyers who have not owned a home in over 3 years to receive a tax credit of up to a maximum of $8000.  Since this went into effect, I have seen an increase of the number of first time home buyers searching for their first home and showing up at realtors “open houses”.

To some potential purchasers in Auburn, $8000 may not seem like that much money, but for most first time home buyers it will help make the difference in achieving the ability to buy a home. Here is a brief overview of how it works:

1. The tax credit is not a loan and does not require repayment, except if the home is sold within 3 years.  This encourages Auburn first time home buyers to remain in their home for three years at least and hopefully longer, and discourages the practice of short-term buying/selling.

2. There are income limitations, and a phaseout begins when the modified adjusted gross income exceeds $75,000 ($150,000 if married filing jointly).  The credit is eliminated at $95,000 ($170,000 if married filing jointly).

3. The purchase must be for a primary residence, and the purchaser will not eligible for the credit if the seller is a relative of the buyer.

4. The credit is available for first time home buyers on home purchases between Jan 1, 2009 and Dec 1, 2009.

5. It is a refundable credit, meaning that if the credit exceeds the tax owed, first time home buyers get the rest refunded to them. Every dollar of a tax credit reduces Federal income taxes by a dollar.  Credits are claimed on an individual’s IRS income tax return.  See first time home buyer tax credit for more easy-to-understand and detailed information from the National Association of Realtors.

6. The funds are unfortunately not available up front to use for  closing costs.   The credit will be reflected on a new Form 5405 that will be attached to the 1040.

Note: Another important aspect of the American Recovery and Reinvestment Act of 2009 is funds for each state for infrastructure. Here is a good website for keeping track of where the stimulus money is going state by state, including Washington state.   Rebuilding America’s Infrastructure.