$8,000 Tax Credit Q & A

Parsing the Home Buyer Tax Credit

Realtors are already fielding questions from clients (see below) about the newly-passed $8,000 tax credit for home buyers.

Details are still sketchy -- the stimulus bill's provisions repeatedly shifted -- but the gist of it appears to be: 1) a scaling tax credit of up to $8,000 (not the $15,000 floated at one point) -- the formula is actually 10% of the home's price, so you max out buying anything over $80,000 (pretty low threshold); 2) a phase-out based on income levels; and 3) no repayment (it's a true credit).

As the details emerge, I think a lot of America is going to discover (remember?) how bad they are at math, and why they hated it in school!

Q: I read a news account saying that the $8,000 tax credit for home buyers is refundable-- does this mean that those paying less than 8K in taxes will be refunded the difference?

A: No. The "refundable" part is that you pay your taxes, then get a refund for whatever part of the $8,000 credit you qualify for. So, if you paid $5k in federal taxes and bought a $100,000 house, you'd qualify for the whole $8,000 -- and therefore get the whole $5k refunded. (You'd actually qualify for 10% x $100k, but it's capped at $8k).

If you pay less in taxes than the credit you qualify for, you leave that money on the table -- you can't get a refund for taxes you never paid. So in the case above, you're "out" $3,000.

Still confused? Just ask your Congressman -- they'll know!