Sandra Bolcar

It's been a bit confusing as to what the stimulus package means to homebuyers--especially first time homebuyers who qualify for the $8,000 tax credit.

So here is a little help in understanding all of it, courtesy of David Rubenstein at Wells Fargo Home Mortgage.

Let's talk a little about the Tax Credit announced in the latest Economic Recovery Act:

First-time homebuyers who purchase homes from now until the end of November 2009 may be eligible $8,000 or 10% (whichever is lower) of the value of the home tax credit. (A tax credit is very different than a tax deduction - a tax credit is equivalent to money in your hand, as opposed to a tax deduction which only reduces your taxable income.) The tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000. Buyers will have to repay the credit if they sell their homes within three years, but not if they stay past the 3 years.

Tax Credit Versus Tax Deduction:

It's important to remember that the $8,000 tax credit is just that... a tax credit. The benefit of a tax credit is that it's a dollar-for-dollar tax reduction, so, if a homebuyer were to owe $8,000 in income taxes and would qualify for the $8,000 tax credit, they would owe nothing.

Better still, the tax credit is refundable, which means the homebuyer can receive a check for the credit if he or she has little income tax liability. For example, if a homebuyer is liable for $4,000 in income tax, he can offset that $4,000 with half of the tax credit... and still receive a check for the remaining $4,000!

Let's talk about how the Phase Out works:

According to the plan, the tax credit starts phasing out for couples with incomes above $150,000 and single filers with incomes above $75,000.

To break down what this phase-out means to homebuyers who are over those amounts, the National Association of Homebuilders (NAHB) offers the following examples:

Example 1: Assume that a married couple has a modified adjusted gross income of $160,000. The applicable phase-out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Example 2: Assume that 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 $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $8,000 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,800.

Remember, these are general examples. You should always consult your tax advisor for information relating to your specific circumstances.

Let's talk about Homes that Qualify

The tax credit is applicable to any home that will be used as a principle residence. Based on that guideline, qualifying homes include single-family detached homes, as well as attached homes such as townhouses and condominiums. In addition, manufactured or homes and houseboats used for principle residence also qualify.

I hope this helps in understanding the tax credit; however, it still can be confusing since the terms of the agreement can some times change as time elapses. Please contact me if you would like further information regarding the tax credit and/or buying a home in Essex County.

I went to visit a customer in Montclair, NJ, to whom I sold a home 8 years ago. The home had a lot of potential back then but money has been tight and her dreams were not realized and now she wants to sell. I gave her a price to really get some interest in the home. She felt the home was worth $75,000 more than I was telling her. She wanted buyers to see the potential that her home has and be willing to pay for it. I had the hard task of telling her that buyers are not looking to pay for potential right now--they are looking for a bargain. Sellers, unfortunately, are about one year behind in the prices they can actually get for their home. Even though Montclair is fairing quite well, only homes that are priced well are selling. If a seller's home is worth more than market value then buyers will pay it. Sellers must think like buyers right now. What would you be willing to pay for your home in today's market??

As a real estate agent in New Jersey plagued with having to sell foreclosures and doing BPO's on peoples' homes about to go in to this abyss, I am touched by the actual people who are loosing their homes. We tend to forget the human touch that these homes once had and that they are like abandoned children no longer well cared for or loved. Yet, if you look carefully, there are all the little signs that show a home was once loved by people when their home was their castle. The flowers planted so lovingly, the home once decorated for the holidays. Let's not forget the people who are less fortunate and losing their homes because they can't afford to make the payments any longer. Let this be a lesson in humility. Please post your opinions.