The Time is Right to Buy a Principal Residence

The housing environment is fertile with opportunities for first-time home buyers and long-term residents of the same principal residence. Congress passed new legislation extending and expanding the First-Time Homebuyer Tax Credit. Mortgage rates for a fixed thirty year loan have dipped below 5%, which historically is very low. And the housing market, close and near its bottom, is littered with houses and condos selling at the lowest levels in years. Buying a house right now is the right time for the right reasons. Let’s take a look at these reasons.

First, married couples purchasing a home for the first-time will receive an $8,000 tax credit from the IRS. Yes, that’s right; the IRS will give you $8,000 for purchasing a home valued between $80,000 and $800,000. What if I am single? You will get a $4,000 tax credit. You need to close on your purchase by April 30, 2010 or have a written binding contract by April 30, 2010 and close on your new principal residence before June 30, 2010 to receive your tax credit. This credit starts to phase out for individual taxpayers with incomes above $125,000 and for taxpayers who file jointly the phase out starts at income levels over $225,000. The only rub on this new law is, if you sell this house within three years of purchase you will have to pay back the credit.

Furthermore, if you have lived in your current principle residence for the last five years you are eligible for this tax credit. Maybe you are thinking about moving up in the market, relocating to another region of the country, or steeping down into a more affordable home. The maximum tax credit will be $6,500 for married couples and $3,250 for single and married couples filing separately. This credit is subject to income limitations and purchase dates and values mentioned above.

Second, there are two tax advantages of owning a home. Taxpayers can deduct the interest on their mortgage payments as well as property taxes paid on IRS Schedule A. Until now, most taxpayers were using the standard deduction when filing their taxes. Not any more, if you buy a home. By itemizing on Schedule A, taxpayers can reduce their taxes and in most cases increase the amount of refund they get back each year from the IRS.

Third, with interest rates floating around low levels, the time is right to purchase a principal residence. Most likely, interest rates will increase over the next one to three years when inflation starts to rise and the Federal Reserve tightens the money supply. Do not miss this opportunity; you might not see low interest rates again for a number of years and by then the tax credit will be gone along with higher priced homes on the market.

Finally, the housing market is close to hitting its bottom, there is no better time to buy than right now. There are sellers right now offering their homes at reduced prices by what the markets calls short sales. With high inventory levels in the housing market, most sellers are willing to negotiate prices to get the deal done.

Do not miss this opportunity to purchase a home and live the America Dream. Go and buy a home today.

If you have questions or concerns, please contact me @ mstevens@rdwarnercpa.com