First-Time Homebuyers Tax Credit for Down-Payment By NAHB

Strategic Home Buyers Can Use Tax Credit for a Down-payment
First-time home buyers can accelerate the receipt of the $7,500 from their tax credit and even apply it toward a down-payment.
National Association of Homebuilder's (NAHB’s) Web site explaining the tax credit — www.federalhousingtaxcredit.com — has been inundated by home builders and prospective buyers seeking information on the new benefit.
One of the most commonly asked questions since the credit was enacted concerns how it can be used for a down-payment, and new questions and answers related to this issue recently have been added to the Web site. (See questions 19 to 21.)
First-time home buyers (defined as those who have not owned a principal residence for three years) should be aware of several mechanisms that can narrow or close the gap between the time they purchase their home and the time they take the deduction on their income tax return.
NAHB successfully pushed for a rule that allows qualified home buyers making a home purchase in 2009 before the July 1 cut-off date to claim the $7,500 credit on their 2008 tax return — in effect, one year early. Also, home buyers who purchase a home after filing their 2008 tax return with the IRS in 2009, may file an amended tax return that includes the credit.
As a result, the qualifying home buyer can significantly reduce the time it takes to receive the cash benefit of the tax credit.
More fundamentally, strategic home buyers have a more effective option in their hands. Prospective home buyers, who are certain they qualify for the credit based on the income limits and the first-time buyer test, can adjust their income tax withholding today through their employer.
IRS Form W-4, which is typically submitted by most workers when beginning a new job, allows taxpayers to adjust the amount of automatic income tax withholding in anticipation of certain tax credits. The form states, “You can take projected tax credits into account in figuring your allowable number of withholding allowances.”
Home buyers who expect to claim the tax credit can reduce their withholding, thereby increasing their take-home pay (net of income tax) and allowing them to begin to claim the expected tax credit for use as a down-payment.
This is done by adding the expected credit amount to line 5 or reducing line 6 (additional withholding) of the Deductions and Adjustments Worksheet on the W-4 and recalculating their income tax withholding. Similar adjustments can be done by home buyers making quarterly estimated tax payments.
Home buyers must be careful to understand the rules for both withholding and the tax credit before submitting a revised W-4 form to their employer. In particular, buyers should consult IRS Publication 919, or check with a tax practitioner, to determine how much to adjust their withholding.
The 2008 version of the IRS publication allows taxpayers to enter the anticipated credit amount on line 9 of worksheet 8, with “other credits.” Buyers must be careful not to reduce their withholding by more than the amount of their expected tax credit, or tax penalties may apply when they file their income tax return. This helpful information was provided courtesy of the NAHB in an effort to assist first-time homebuyers with their purchase.

Thank you,

Jeff Sargent

Jeff Sargent
Residential Mortgage Division-President
ONB Bank & Trust Co
8908 S Yale Ave, Suite 250
Tulsa, OK 74137
Office: 918.392.6572
Cell: 918.636.0630
Fax: 918.392.6550
jeff_sargent@onbbank.com
Member FDIC