Wednesday, September 2, 2009

New York Gives First-Time Home Buyers an Added Tax Incentive

In addition to the $8,000 federal first-time home buyer tax credit, the state of New York is providing a tax credit for residents who are looking to buy their first home.

The New York State Mortgage Credit Certificate gives qualified borrowers a tax credit equal to 20% of the mortgage interest for the life of the loan, which can be combined with the $8,000 first-time home buyer tax credit for those who qualify for both.

According to the state’s estimate, a home buyer with a $200,000 loan at an interest rate of 5.5% will realize just over $2,100 in tax savings in their first year of ownership — a savings of $182 per month. The tax credit amount will decrease over time as the amount of interest paid decreases.

A calculator has been provided on the state’s Web site to help home buyers determine savings based on their specific situation.

Unlike the federal tax credit, the state program does not expire on Dec. 1. There are restrictions, however. It only applies to new, fixed-rate mortgages — including conventional loans (Fannie Mae/Freddie Mac), FHA-insured loans and VA-guaranteed loans — and the tax credit will come to an end if the home buyer refinances their mortgage. The state has also placed purchase price limits on the property, which vary by region.

Like the federal tax credit, to qualify for the Mortgage Credit Certificate the borrower must be a first-time home buyer, reside in the property as their principal residence and meet income limit restrictions — which are based on the region in which the home buyer resides.

To get the Mortgage Credit Certificate, borrowers need to contact one of the state’s participating lenders and apply for it at the same time that they are applying for a mortgage. Upon approval, the borrower can claim the tax credit on their federal return along with IRS Form 8396.

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