SANTA CRUZ (April 18, 2009) - To encourage homeownership last year, Congress passed the Housing Assistance Act of 2008. The plan offered first time homebuyers a $7,500 interest-free loan from the U.S. government for those buying their first home between April 9, 2008 and July 1, 2009. This year, the Obama Administration and Congress is offering a much more enticing reward: $8,000 with no payback responsibilities as long as you keep your home as your principal residence for at least three years.

Just like in last year’s bill, there are restrictions. First of all, you must buy a home (or have already purchased a home) between April 9, 2008 and December 1, 2009. If your adjusted gross income is greater than $75,000 or $150,000 if married and filing jointly, the tax credit begins to phase out. If your income reaches $95,000 or $170,000 if married and filing jointly, you are not eligible for any credit. The maximum allowable credit for a married person, filing separately, is $4,000.

You also must be a first time homebuyer which is defined as a person(s) who has not owned a principal residence in the past three years. Under this definition, a person who owns rental homes would still qualify for the tax credit when buying a principal residence.

Many homebuyers were asking whether or not they could claim the $8,000 on the taxes they owed for 2008. The answer is yes. Even if you have filed your taxes for 2008 (by the way, either your taxes or an extension should have been filed by April 15) and even if you purchase a home in 2009, we hear from the IRS that you may file an amended return for 2008 and be eligible to receive your tax credit this year. Please be sure to confirm this with your tax preparer.

To top it off, the State of California, in an attempt to encourage employment and new home construction, is offering an additional $10,000 tax credit for any homebuyer who buys and occupies a brand new home between March 1, 2009 and March 1, 2010. There are no income restrictions and you do not have to be a first time homebuyer. The federal and the state programs can be combined for a total potential value of $18,000. Anyone going to be moving into their new home during this 12 month period may qualify! Again, be sure to check with your tax preparer.

While the State program is not likely to help many in Santa Cruz County , the $8,000 tax credit will be a big hit. Consider the family buying its first home for $400,000, which is greater than the median priced home here now, with a down payment of just $14,000 and getting the seller to agree to pay all of the closing costs. After the federal tax credit of $8,000, the move in costs for this home will be just $6,000.

It is often said that the biggest obstacle to homeownership is lack of cash; however, by combining the minimum down payment of an FHA loan and the federal tax credit, those waiting to save more money before stepping in to buy a home should be making their move now!

This column is written every Saturday by Peter Boutell, Certified Mortgage Planner and a principal at Santa Cruz Home Finance. You may reach him at (831) 425-1250 of email him at Peter@SantaCruzHomeFinance.com.