Shopping for a new home? You might want to make sure that you lock in a deal by April 30, 2010.  Beyond great mortgage rates and low home prices, our government is giving you a nice incentive to act now – a sizable tax credit. If you think a tax deduction is great, let me show you how much more advantageous a tax credit can be.  Let’s look at an example. 

According to the 2009 tax table, if you are single and have taxable income of $60,000/yr, you would pay $11,194 in taxes.  A tax deduction of $6500 would have the following effect:

$60,000 - $6500 tax deduction = $53,500 taxable income.  The tax for $53,500 of taxable income = $9,569.  Therefore the tax deduction of $6,500 has had the net effect of reducing your taxes by $1,625 (from $11,194 to $9,569). 

Now let’s consider what the effect would be of a $6,500 tax credit (the current maximum allowable credit for qualifying single long time repeat homebuyers).  Using the same example above, your tax bill starts out at $11,194.  A tax credit would have the following effect:

            $60,000 in taxable income = $11,194 in taxes - $6,500 tax credit = $4,694.

Thus the $6,500 tax deduction had the net effect of reducing your tax bill from $11,194 to $9,569 (a reduction of $1625) while the $6,500 tax credit had the net effect of reducing your tax bill from $11,194 to $4,694 (a reduction of a full $6500).

In other words, the tax credit resulted in $4,875 more in your pocket than the tax deduction!   

So if you’ve been thinking of buying a new primary residence soon, take advantage of this gift from Uncle Sam if you can.  The tax savings should be more than enough to cover any closing costs and you should still be able to walk away with enough in your pocket to treat yourself to a nice vacation or few choice purchases at the mall. 

And if you do decide to buy that home, be sure to check current mortgage rates on INFOTRAK before securing a mortgage loan and try our user-friendly mortgage calculators to check your monthly loan payments.

Happy New Year!

By Deborah Higgins, INFOTRAK National Data Services