What is a ‘Tax Credit’?
A tax credit is an amount of money taxpayers can subtract from their taxes owed to the government. Tax credit values depend on the nature of the credit. Different types of tax credits are granted to individuals or businesses in certain industries or locations.
Tax Credits vs Tax Deductions
While deductions and exemptions reduce the amount of taxable income, tax credits reduce the actual amount of tax owed.
$8000 Tax Credit for FHA loans
According to the American Recovery and Reinvestment Act of 2009, also known as “the stimulus package”, tax credits provide first-time homebuyers a tax break totaling 10% of the home’s purchase price, with a maximum tax credit of $8000. This amount may be less depending on the purchase price. First time FHA mortgage borrowers can use the entire tax credit for closing costs.
Tax Credit Qualifications
Not everyone qualifies for a tax credit. In order to qualify, you must be a first-time homebuyer, meaning you have not owned a home previously or you haven’t purchased a primary residence in the last three years. For a married couple, each spouse needs to satisfy this qualification. However, purchasing other property doesn’t automatically disqualify you.
There are also income limits. Single individuals cannot have a modified adjusted gross income cannot be greater than $750,000. Married individuals cannot have a household income of more than $150,000. While there is still a possibility that you can qualify if you don’t meet these, it is much less likely than those who do meet these qualifications.