Tax Relief Act Passed By Congress For Homeowners

Congress has passed a tax relief act for homeowners in order to promote spending and to avoid further problems with foreclosures in the housing market. In addition, Congress authorized increased real property tax deductions for people that do not itemize their deductions when filing their federal income tax return. These tax relief measures are designed to help homeowners keep their home in the face of rising oil and food prices and a shrinking job market.

2008 American Housing Rescue and Foreclosure Prevention Act

The American Housing Rescue and Foreclosure Prevention Act, passed by Congress and signed into law by President George W. Bush, extended to then current homeowners, first-time homeowners and developers of low income housing certain incentives and tax credits. For example the act provides a two-year limited property tax deduction for all homeowners that do not itemize their deductions, a refundable tax credit for eligible first-time homebuyers and increased tax credit incentives for developers that develop low income rental housing.

One of the most beneficial parts of the act is the tax credit that it offers to first-time homebuyers. A tax credit differs from a tax deduction in that it reduces the actual amount of tax that you owe to the Internal Revenue Service, whereas a tax deduction simply decreases your taxable income. Therefore, a tax credit is all always more valuable to taxpayers than a tax deduction.

Under the act, first-time home buyers can receive a tax credit for 10% of the home purchase price, up to a maximum credit of $7500 - or $3750 for each spouse if filing separately. In order to take advantage of this tax credit, first-time homebuyers must have purchased their home in 2008. However, the tax credit must be repaid in equal installments over 15 years.

American Recovery and Reinvestment Act of 2009

Under this act, Congress also approved tax credits for first-time homebuyers; however, with the new act -- the tax credit doesn't need to be repaid. Furthermore, the maximum amount of the credit was increase to up to $8000 for all eligible property purchases. However, if the home is sold within three years of purchase, the entire amount of the tax credit is recaptured by the IRS at the time of sale. This act applies only to homes purchased between January 1 and November 30, 2009.

In order to get the first-time home buyer tax credit, you simply apply it to your federal income tax return. If your credit is less than you owe in federal income taxes, the tax credit will lower your tax liability to the Internal Revenue Service. If the tax credit is more than you owe in taxes, the IRS will refund you the difference and if you do not do any federal income tax whatsoever, the government will send you a check for the full credit amount. You must file a federal income tax return to take advantage of the tax credit, even if you don't owe and income tax at all.

Keep in mind that the tax credit on given under the 2008 acts is an interest-free loan, and must be repaid. For homeowners that take advantage of the tax credit provided in the 2009 act, the credit does not have to be repaid, unless the home is sold within three years of the date of purchase.