As a potential new, first-time homebuyer I have taken great interest in the proposals included in the proposed stimulus package – in particular as it relates to incentives to purchase homes. After spending a great deal of time reviewing the proposed $15,000 Homebuyer Tax Credit I have reached the conclusion that it is NOT really a $15,000 credit for an average citizen.

First, I’ll give you some of the details. The proposed legislation would offer a credit of up to 10% of a primary residence purchase price, up to $15,000. The credit would be applicable for home purchases made from the date of enactment to one year thereafter and would sunset the current $7,500 refundable tax credit for first-time homebuyers on the date of enactment. The credit could also be claimed on 2008 taxes.

The drawback of this legislation is the limitation based on amount of tax liability in a given year, something that did not exist in the original first-time homebuyer credit. Let’s run through an average, simplified example:

John and Jane, who have one child and file a joint return, purchase a $160,000 house and generate an annual income equal to the 2006 U.S. median family income, $58,407 according to the U.S. Census Bureau. They do not itemize their deductions and claim three exemptions, thus reducing their taxable income to $37,007. Their total tax would then be $3,751 after subtracting the $1,000 child tax credit.

The limitation based on amount of tax liability means in 2008 John and Jane could not claim a $15,000 credit on their home purchase, rather only a $3,751 credit! The legislation does allow you to split this over two years meaning they could take an additional $3,751 in 2009 if all else remained equal. In total, the tax credit is only $7,502!

In my opinion, a $15,000 credit for all home buyers sounds great, but don’t start planning a major renovation anytime soon. To take the full credit you essentially have to make over $80,000 – or $100,000 if you want to take it in one year.

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Note: The author of this post is not an accountant and is not providing tax or legal advice. The author makes not claims that the post is accurate or calculated correctly. For specifics regarding your own situation, contact a qualified tax professional.

U.S. Census Bureau
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