When it comes to the $8,000 tax credit for first-time homebuyers, it seems there's a new program every week to help tap that money today.
The credit can be claimed on 2008 or 2009 tax returns. Homebuyers who get a loan backed by the Federal Housing Administration can use the money to cover closing costs and other fees, and at least 10 states offer ways to use the tax credit faster.
"There are some real neat tax planning strategies you can apply now," said Bob Meighan, vice president of TurboTax.
To be eligible, a buyer cannot have owned a home in the past three years. So if you're ready to buy, here are some tips:
INCOME CONSIDERATIONS: The tax credit, for home purchases made through the end of November, comes with income thresholds, $75,000 for individuals and $150,000 for joint filers. After those limits, the credit begins to phase out. If you bought a home this year and expect your 2008 income to be lower than next year's, it makes sense to file for the credit this year using a 2008 amended return.
However, if you think your income will decrease, due to job loss, wage cuts or hour reductions, it makes more sense to file for the tax credit on your 2009 tax returns to get the most out of the credit, Meighan said.
TAX WITHHOLDING: Another benefit to waiting until 2009: You can increase your take-home pay. By taking the credit next year, you can change your tax withholding status with your employer now and get more on each paycheck, Meighan said.
You'll be giving up a "fatter" tax refund next year, but each month you'll have more change in your pocket.
Also, don't forget to reduce your federal and state tax withholding to account for the tax deduction you can take on the mortgage interest and property taxes you pay.
BRIDGE LOANS: Ten states (and the list keeps growing) are offering so-called bridge loans for the federal tax credit, so homebuyers can take advantage of the $8,000 before the 2010 filing season. Qualified buyers in Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania and Tennessee can receive a loan with little to no interest and repay it with the tax credit refund next year.
"I see it as an upside," Meighan said. "It gives homebuyers more flexibility," with the money.
Each state program varies and some require a minimum down payment contribution from the buyer.
Some nonprofit organizations like NeighborWorks America are also offering bridge loans for the tax credits.
California also enacted its own one-time home buying credit for newly built homes purchased between Feb. 28, 2009, and March 1, 2010. The nonrefundable credit, which is for all buyers, not just first timers, is equal to 5 percent of the purchase price up to $10,000. It can be claimed over a three-year period. The property must be a single-family residence, the principal residence and eligible for the property tax homeowners exception.
A California resident can take both the federal and state tax, according to Kathleen Thies, a state tax analyst at CCH Inc. However, only $100 million has been put aside for the state credit and that money is expected to run out this month or next. And there are no plans to add more funding to the program.
"It's on a first-come, first-served basis," Thies says.
ADVANCE CREDIT: Last month, the FHA said its borrowers can receive advances on the $8,000 first-time homebuyer tax credit from lenders, so they don't have to wait to get the money next year from the Internal Revenue Service.
Borrowers will still have to come up with the FHA's required 3.5 percent down payment, but the advance from the tax credit can be applied toward closing costs, fees or to increase the down payment.
John W. Roth, a senior tax analyst at CCH, said he thinks some lenders won't participate. The process involves more work for lenders, but lenders can only charge an additional 2.5 percent fee for that work.
"How many qualified FHA lenders will offer this option to their borrowers will be interesting to see," he said.
Roth advises homebuyers to wait and receive the money in next year's 2009 tax return.
"There's always those initial expenses when you move in that are more than you expect."