Homebuyer Tax Credit for Purchasing Home Owners
Sept. 29, 2014
by Teresa Larson, Village Real Estate, Murray UT 84123
20+ years real estate experience
The current Homebuyers Tax Credit is available in all 50 states. In Utah the Homebuyers Tax Credit is administered through the Utah Housing Corporation. The Homebuyer Tax Credit is actually a Mortgage Credit Certificate that is issued to you after you close on your home. You may hear of The Home buyers Tax Credit referred to as the HTC or MCC they are the same thing. The difference between a tax credit and a tax deduction is that with a credit the amount of taxes you owe is reduced by the amount of the credit. A tax deduction reduces your taxable income. The process needs to be started with your lender before your final closing on the home. You include the tax credit on your federal income tax form for the life of the loan. Your lender will provide you with a yearly statement telling you how much you have paid in interest on the loan for each year of the loan.
How The Home buyers Tax Credit Works
The tax credit essentially converts a portion of a home owner’s mortgage interest deduction into a tax credit for federal income taxes. It is an annual IRS tax credit for the life of the original mortgage. Not a one-time credit. You can save up to $2,000 each year for the life of the loan. Some lenders will let you use the tax credit as a way to qualify for the loan or for a little more house. This helps if a borrower’s income is just short of what is needed to qualify. The credit does not reduce what you actually must pay on your mortgage. The tax credit is only good for the original loan so if you refinance you will not be eligible and may even have some recapture tax consequences. The home buyer tax credit is a dollar for dollar reduction in federal taxes. It is worth up to 25% of the interest paid on a mortgage annually. The credit works with conventional, FHA, VA, Utah Housing and USDA mortgages. Your annual tax credit savings cannot exceed your annual IRS tax liability (i.e. if your tax liability is only $500 your Homebuyer Tax Credit cannot exceed $500).
Qualifying for the Home Buyers Tax Credit
This is only available to first time homeowners who meet certain income, purchase price and owner occupancy qualifications. Unless you purchase in a targeted area. Qualifications are determined by county, family size. Income limits range from $65,300 to $137,200. There is a recapture tax if your income grows substantially and you sell the property within 9 years. Note if you live in a targeted area the guidelines are more liberal. You do not have to be a first time home owner. The income and purchase price guidelines are higher. All of Utah County is targeted and other areas are shown on the Utah Housing website.
One deterrent for this program is the application fee due to Utah Housing at application. For a Mortgage Credit Certificate the fee is $750 unless you are doing a Utah Housing loan and then the fee is reduced to $250. This means that total out of pocket costs are higher. The yearly savings could be worth it. The extra fee is needed to cover the administration of the program. Once you have applied and receive your Mortgage Credit Certificate do not lose it because you will need it every year when you file your taxes. Utah Housing will charge you $100 to replace it.
You Must Use an HTC Approved Lender for Your Loan
Before claiming the Homebuyers Tax Credit buyers must apply for a certificate through Utah Housing. This is done through an HTC lender approved through Utah Housing. Not all Utah Housing approved lenders are approved to do the HTC loans. Most HTC lenders are approved to do Utah Housing. These lender approvals are part of a process with Utah Housing Corporation. There is a list of HTC lenders available online at the Utah Housing Corporation website. To clarify these listed lenders can do other types of loans. Utah Housing loans work nicely because the application fee for the program is much less with a Utah Housing Loan. Utah Housing loans you need a higher fico score than a standard FHA/VA loan. If Utah Housing doesn’t work for you maybe an FHA, or VA or conventional loan would work. The loan officer will help you determine which loan is best. The HTC approved lender needs to do your loan and apply for the Mortgage Credit Certificate for you as part of the loan process.
Talk to a Tax Accountant About Your Individual Situation
You could run into trouble if you double dip and claim the interest deduction as well as the home buyers tax credit. An example would be: you paid $8,00 in interest. If you use the tax credit at $2,000 then you actually can only use $6,000 for your tax deduction on your federal return. this is why it is recommended that you use a tax accountant to discuss the consequences of the program for your individual circumstances. Each homebuyer’s situation is different, and homebuyers should not rely on any material from this blog, Utah Housing or any lender but should consult with a tax accountant regarding tax consequences personally when using the tax credit.
What is Utah Housing Corporation
Utah Housing Corporation was created in 1975 by our state legislature to serve the public by creating an adequate supply of money to serve the public. They provide low interest mortgage loans to help low to moderate income persons. Most real estate agents in Utah are familiar with Utah Housing loans and can help you find a property that will qualify for Utah Housing and or for the Homebuyer Tax Credit.
Loan Officer’s and Real Estate Agent’s
Some loan officers and real estate agents may steer you away from Utah Housing. Much of the time this is because they are not approved to do Utah Housing Loans. Keep in mind that the fee a loan officer gets for originating a Utah Housing loan is less than other types of loans so make sure the reason for not wanting to do a Utah Housing Loan is valid for your situation. Utah Housing loans often have a lower interest rate than FHA or VA loans. Even Utah Housing lenders needed to get approved for the Homebuyers Tax Credit program. You will need to use a lender that has gone through the steps to be an approved lender for this program. Ask your lender if they are approved as sometimes the website is not up to date.
Some real estate agents may steer you away from Utah Housing because it is a state agency and another tier in the loan process. Make sure your real estate agent is familiar with Utah Housing. In reality it only ads a few extra days to the home buying process. Utah housing Corporation could be a viable resource for many people in securing a home of their own.
Deseret News Sept 27, 2014, Utah Housing Launches Tax Credit Program , author Rick Southwick, President Utah Assoc. of Realtors
©Teresa O Larson PC, 2014