Home Buyer Credit For 2009
November 20th, 2008
Question: How can I reduce my withholding in 2009 in anticipation of the home buyer credit?
My husband and I are looking to purchase our first home in the coming months, and wanted to use the $8000 home buyer tax credit towards our down payment. While researching yesterday, I determined that we can’t file for the credit until we have actually purchased a home, but I read that we can reduce our withholding this year, saving the extra net income for our down payment, effectively reducing the amount of the tax credit we receive when we file our 2009 return. I’ve been looking over the W-4, but have absolutely no idea what I can legally change to reduce my withholding. Do I claim “0″ personal allowances? How will I know how much more my paycheck will be? Is there any way to ask for the withholding to be reduced by a specific amount per pay? Ideally I would like to have no federal tax withheld for the next four months, but have a feeling that won’t be possible. Thanks in advance for your advice!
Answer: Each W-4 allowance represents the tax on $3500 of income. So the amount that equals an $8000 credit would depend upon your marginal tax rate. For example if you are in 15% bracket it would be 15 more allowances, or in 25% bracket would be 9 more allowances.
But if you do not close on a home by Nov 30, 2009 you could be hit with not only thousands of dollars in taxes, but also under withholding penalty. So taking more W-4 allowances before you are absolutely positive that you are going to be able to buy on time could be risky.
It would be much safer to simply amend your 2008 taxes after you close to get the credit refund soon “after” you close (see IRS Form 5405).
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Tags: buyer, credit, first time home buyer credit for 2009, home, realestate, tax