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The first time home buyer tax credit has been extended — and expanded. The $8,000 credit has been extended by six months, and there has been an expansion to include current home owners who want to buy. Current home owners can get a $6,500 tax credit when they look for a new home. This is along the lines of the tentative agreement reached last week. Bible Money Matters offers a great summary of the main points for the new $6,500 tax credit:

• The credit is available for homes that go under contract by April 30, 2010 and close by June 30th, 2010.
• Current homeowners can claim a $6,500 credit as long as the property they are vacating has been their primary residence for at least five consecutive years out of the last eight years.
• Income limits: $125,000 a year for individuals, $225,000 a year for married couples. (these are higher limits than before)
• Homes that cost more than $800,000 aren’t eligible for the credit.
• $6500 tax credit is not retroactive.  (from the language of the bill: “shall apply to residences purchased after the date of the enactment of this Act.”)

Sadly, I don’t qualify. Which is okay, I suppose. We weren’t planning on moving any time soon, so it’s not like we would use it anyway. But it would still be nice to know that if we wanted to take advantage of such a great deal, we could. It’s not $15,000, but it’ll do. It’s better than nothing.

However, the tax credit extension is also expected to help keep home prices higher. The Wall Street Journal reports on the first time home buyer tax credit and its results:

Goldman Sachs estimates that the credit resulted in 200,000 sales this year, but that many of those sales were front-loaded—driven by a surge in sales shortly after the tax credit took effect. The simple extension “should result in fewer incremental first time purchases than the first round of the credit did,” writes Goldman economist Alec Phillips.

While the tax credit won’t reduce excess inventory, the incentives could keep prices up because “potential sellers are likely to incorporate a fraction of the credit amount in their sale price—with the knowledge that the majority of buyers will qualify for either the first time or move-up credit,” writes Mr. Phillips.

When you have an asset that appreciates in value, you normally have to pay capital gains tax on the increase that you earn. However, when this comes in the form of a home, it is worth noting that you often receive an exemption from paying the capital gains tax. (With home prices on the rise again, more people are starting to consider selling.) But you do have to properly qualify. My Life ROI offers this information on the general rules to avoiding the capital gains tax when you sell your home:

You can exclude $250,000 in profit from the sale of your main home. If you are married, you are allowed to exclude a total of $500,000.

What do I mean by main home?  You need to have owned and lived in the home for a minimum of two years. These two years do not necessarily need to be consecutive as long as they are within the past five years.

You can use this “2 out of 5 year rule” to exclude your profits from the sale of your home each time you sell. For the most part, you can only use this exclusion once every two years.

Of course, there are always exclusions, which is why you need to check with a tax professional before making any decisions. You want to make sure you are getting the most out of your tax exclusion, as well as make sure that everything is done above board.

Additionally, you can use what is known as a 1031 exchange in order to avoid other tax issues. This can even work when you are buying foreclosure and short sale properties. But, again, you want to make sure that you are careful to consult with a knowledgeable professional to make sure everything is handled properly.

In the end, there are a number of tax benefits associated with owning and selling a home. It is vital that you consider the benefits, and do your best to maximize them, no matter what stage of home ownership you are in right now.

Image by K. Todd Storch via Flickr

A couple of weeks ago, I got a new property tax assessment. And it looks as though I’m not the only one who will be seeing an increase in property taxes. Money magazine reports that municipalities collected more in property taxes, even as the housing market crashed. I can see why. Even though my home decreased in value by $4,000 between 2007 and 2008, apparently there has been a huge jump between 2008 and 2009: The county assessor thinks that my home as appreciated in value by $14,000.

I know that my town is one of the few that was not completely hammered by the housing market collapse, and I also know that my town is one of the very few in the state of Utah that saw an increase in home values. But $14,000? It seems a bit steep. Which is why I am considering challenging my property tax assessment.

Challenging the property tax assessment

In order to challenge your property tax assessment, you will need to go to the county assessor’s office with proper documentation. Here are some things you need:

• Check for errors. The tax record might have some errors. Make sure the information used to determine your property tax is accurate.
• Gather comparable home information. Look for homes that have sold recently in the neighborhood or the town. You will need information from at least five comparable homes that show that they sold for less than your home is valued at. Realize that the county assessor will probably not count foreclosures. Your sale price will be affected by foreclosures, but the county assessor won’t change anything because of it.
• File on time. Realize that, depending on local regulations, you may only have between 30 and 90 days to file an appeal.

In some cases, you can resolve the issue informally with the assessor. In other cases, you may need to file a formal appeal. If you really think that your home has been overvalued for property tax purposes, consider appealing. It could save you hundreds of dollars.