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Get an $8,000 tax bonus if you buy a home by November 30, 2009

The recent economic stimulus law contains a big tax break for first-time homebuyers: If you buy a home by November 30, 2009, you can claim an $8,000 tax credit.

Congress had previously approved a similar credit, but it had required homebuyers to pay back the money over time. In effect, it was an interest-free loan. Under the new law, however, the credit doesn’t have to be paid back – it’s free money.

Here are the facts:

  • The “free” credit applies to anyone who buys a home between January 1 and November 30, 2009. The closing must occur between those dates.
  • You must not have owned your principal residence for the last three years before the closing date. If you’re married and filing jointly, your spouse must also not have owned a principal residence for three years. (You can have owed a vacation home or other property.)
  • If you hired a builder to construct a home on land you own, you can claim the credit if you first lived in the home between January 1 and November 30.
  • The credit is available if you have modified adjusted gross income of $75,000 or less for single people and $150,000 or less for married couples. A partial credit may be available if you have income up to $95,000 for singles and $170,000 for couples.
  • If you’re married and filing separately, each spouse can claim a $4,000 credit.
  • You’ll have to repay the credit if you sell the home within three years.

More help with real estate taxes

Another new law in Congress contains some additional real estate provisions that favor taxpayers:

  • Taxpayers who don’t itemize their deductions can nevertheless deduct up to $500 of their property taxes, or $1,000 for married couples filing jointly. This will be true for the 2008 and 2009 tax years.
  • Businesses affected by a federally declared disaster can immediately deduct (rather than capitalize) their property losses.
  • Individuals affected by a federally declared disaster can more easily claim a casualty loss, and can claim a deduction even if they don’t itemize.
  • There are more favorable depreciation rules for real estate improvements, including retail improvements.
  • Certain environmental clean-up costs, which stopped being deductible in 2007, are now deductible through the end of 2009.
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