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Real Estate Tax Credits

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There are presently two common types of real estate tax credits in the U.S. that are applicable to residential homebuyers. Let's take a look at these two types of tax credits and their effect on the housing market.

Homebuyer Tax Credit

Homebuyer tax credit - this tax credit was instituted in response to the housing crisis in the United States that began in 2007. It is currently set to expire at the end of September 2010. To qualify for the $8,000.00 tax credit you must sign a purchase contract by April 30 and close by September 30. For an in depth discussion and analysis of the homebuyer tax credit please see our article What is the homebuyer tax credit and how does it work?. The homebuyer tax credit has helped to fuel the stabilization that we have started to see in the housing market at the end of 2009 and the beginning of 2010. While most experts will be quick to point out that we have not yet started seeing any sort of meaningful recovery it is certain that the popularity of the homebuyer tax credit has played a major role in increasing home sales and helped to bring some degree of stability back to the U.S. housing market.

What will happen when the homebuyer tax credit expires? That is the key question surrounding the tax credit at this point. Lawmakers who have been accused of intervening too much to help the battered U.S. economy are now taking steps to remove some key economic support policies in an effort to let the economy stand on its own two feet. Certainly, the U.S. government cannot continue to prop up the housing and financial markets at the expense of the U.S. tax payer. It will be interesting to see if the fledgling recovery in the U.S. housing market can continue without the homebuyer tax credit in place.

Energy Efficiency Tax Credit

The second type of real estate tax credit we want to take a look at is - Federal Tax Credits for Consumer Energy Efficiency (Energy Star program). You may be eligible for a federal tax credit if you purchase certain energy efficient products for your home. There are three different federal tax credits that cover specific products and have differing expiration dates:

Tax credit expiring 12/31/2010 covering 30% of costs up to $1,500.00 if you buy the following for your primary residence (does not include new construction):

  • Insulation
  • Windows and doors
  • Non-solar water heaters
  • Roofs (metal and asphalt)
  • Biomass stoves
  • Heating, ventilation and air conditioning

Tax credit expiring 12/31/2016 covering 30% of costs with no limit. For your primary residence - both existing homes and new construction qualify. Here are the products covered:

  • Geothermal heat pumps
  • Residential small wind turbines
  • Solar energy systems

You apply for your federal tax credit by submitting form 5695 with your tax documents for the year in which you installed the product in your home.

The energy tax credits have not likely had any notable impact on the housing market in terms of encouraging new sales - however these tax credits will certainly go a long way toward changing consumers buying habits and encouraging a more environmentally friendly way of thinking about products for your home.