Tax Credits for Homebuyers
Homebuyer Associates April/May 2009 E-Note
Housing Tax Policy and Credits
Homebuyer Associates
414.254.4129
Michael D. Holloway/Seamus Holloway/Lynn Sarver/Paul Wollersheim
Tax policy is about “nudging” people in a particular direction. The Republicans and Democrats do this each in their own way. I know this from my years working in politics (a previous life) and I’m reminded of it again in a book I’m reading, Nudge by Richard Thaler and Cass Sunstein (a link to a review is below).
http://yalepress.yale.edu/reviews.asp?isbn=9780300122237
This piece is not about who I think is right or wrong about tax policy. It is about understanding tax policy and using it to your advantage. For example, most of you are familiar with the $8,000 first time home buyer tax credit yet may not be aware of the difference between a tax credit and tax deduction.
A tax credit is a dollar-for-dollar reduction of your tax liability while a tax deduction reduces your tax liability in proportion to your tax bracket. The credit has greater value.
This credit, coupled with low interest rates and home prices make it – in my opinion – a good time to buy a home in the Milwaukee metropolitan area. It’s foolish to try to time the housing market and more foolish to think that what is going on in Las Vegas or Arizona is occurring in Milwaukee. Read the byline, not the headline. If you are holding off buying because of either, you may miss an opportunity.
As always, I’m not proposing that you panic and buy based on emotion. I am proposing that you buy a home the Homebuyer Associates’ way – using the boring, methodical approach of gathering information and making an informed choice.
In previous E-Notes and Newsletters I’ve written about the rent ratio as a guide to determining when to buy a home. Last July, Milwaukee’s rent ratio was 16.4. In a recent Wall Street Journal article one writer believed a rent ratio under 19 provided a buying opportunity.
With many of the properties I’ve looked at recently I’ve seen the ratio as low as 15.2. With or without the $8,000 tax credit it’s probably time to start asking questions – in case you later determine you want to make an informed housing choice.
If you already own a home, now may be the time to look at the tax credits available to you if you make your home more energy efficient. I recently helped a former client through this maze as she upgraded her 21-year-old furnace with a new energy efficient replacement. The net cost the upgrade was $2,900 after state and federal tax credits and manufacturers rebate were applied, this, for the most energy efficient model available.
This investment in an energy efficient furnace did three things:
1. The new furnace will use less energy which means less petrol- dollars to the Middle East and a step
toward energy independence;
2. The new furnace provided employment for a worker which will move us one step closer to turning
around the economy;
3. The new furnace will result in lower heat bills for the owner.
The law also allows for tax credits for insulation, windows and doors, air conditioners, boilers and other energy upgrades. Please contact me if you have real estate related questions or questions about the first time homebuyer credit or energy credits.
Thanks for reading.
Michael D. Holloway