Agent: With Tax Season Here, Sammamish Homeowners Will Want to Remember Credits

Tax season is upon us. Everyone is searching for ways to save money on his or her tax return. Many homeowners don’t have to look any further than their home to find substantial savings.

Uncle Sam has given us several opportunities to apply for a credit but restrictions and requirements apply. You need to know what numbers to use on your tax return to eliminate the possibility of added tax or penalties.

First-Time Home Buyer Credit

If you were a first-time home buyer last year, you may have the opportunity to claim up to an $8,000 credit on your tax return. A first-time homebuyer is someone who has not owned a main residence in the preceding three years of the new purchase. But there is a process that must be followed. Other factors also will determine your eligibility.

Nationally, the Government Accountability Office estimated that 1.7 million first-time buyers took advantage of the $8,000 tax credit. In Washington state, the number reached 10,373 buyers. The date you signed your contract and the date you closed are the factors that determine your eligibility to claim the $8,000 credit on your 2010 return. You must have signed the purchase agreement before May 1, 2010 and closed before Sept. 30, 2010.

Income limitations are $125,000 for single filers and $225,000 for joint filers.  A reduced credit is available for those above these income levels.  The credit is calculated on 10 percent of the price of the home up to a maximum of $8,000. Credits do not have to be repaid if the home remains your primary residence for three years.

Repeat Homebuyer Credit

There were also credits applied to homebuyers who have lived in their homes five of the last eight years. Again, the credit is calculated on 10 percent of the purchase price up to $6,500. If married, both spouses must meet the residency test. Almost 4,500 Washington state residents were able to qualify, according to statistics.

First enacted in 2008, the credit has been changed and revised several times

When the original first-time home buyer’s tax credit was initiated in 2008 for $7,500, it was set up as an interest free loan that had to be paid back in installments beginning in 2010. This means that tax payers who claimed the full amount on their 2008 tax returns will begin paying $500 this year and for each year after until the loan is paid off. If you sold the house, the entire credit must be paid at closing.

If you waited until 2009 to buy your first home, you will not have to repay the credit if you use the home as your primary residence for at least three years.  Home prices have fallen substantially in the last several years. If you do sell and the gain is less than the credit, you may not be required to pay any of the credit back.

Another question: Are you used to filing electronically? To claim your credit, the Internal Revenue Service requires that you submit documentation – usually your settlement statement – along with your tax return. This must be done by mail.

Energy Credits

To encourage homeowners to be more energy efficient, the federal government began offering residential tax credits for 30 percent of the cost of energy efficient products, up to $1,500 on an existing primary residence. Not all improvements or products meet IRS standards and usually only the cost of materials is considered.

Although you can recoup $1,500 in either 2009 or 2010, the limit is for $1,500 combined for both years. Documentation is required. So, save your receipts. Ask your contractor for an itemized bill that separates material and labor. Documentation must be submitted with your tax return. 

There are additional residential projects that involve alternative energy sources that have no limit on the 30 percent cap.  Additions such as Solar energy could be very expensive and a larger tax credit make them more appealing.

To verify you receive the full amount of your credits, it is wise to consult a tax advisor.

Joan Probala is the managing broker for Issaquah Windermere (Windermere Real Estate/East Inc.). She has 30 years of experience in real estate, construction and sales.