For Current Homeowners
 
A new mortgage-assistance plan has been developed to help current homeowners ward off foreclosure.  This is being approached in two ways:
 
1.  Making it easier to refinance
 
Homeowners who are current on their mortgage payments often find that their lender will not let them refinance because their property value has decreased, and they now have little or no equity in their home.
 
The new provision allows people in this situation to take advantage of today's low interest rates by refinancing anyway.  Their current loan must be owned or guaranteed by Fannie Mae or Freddie Mac, it can not be a jumbo loan (ineligible for government backing), and they must not owe more than 105% of the value of their home.
 
2.  Making it easier to modify loan terms
 
Homeowners who are falling behind on mortgage payments, or who can prove that they are in danger of falling behind, may be eligible to have their payments reduced to 31% of their gross monthly income.
 
The home must be a primary residence, and the loan must have an unpaid principal balance of $729,750 or less.
 
Not surprisingly, there are more details that determine who can take advantage of these programs.  The Wall Street Journal has a helpful chart that breaks eligibility criteria down into simple terms:  click here to see it.

 

The Journal also ran a good article using real-life scenarios showing who could and could not qualify:  here's a link to that article.
 

 
For Home Buyers:
 
The tax breaks for home buyers fall into two main categories, depending on if the home purchase was made in 2008 or 2009.
 
1. Homes purchased in 2008
 
First-time home buyers who bought a home between April 8, 2008 and the end of 2008 may be eligible for a tax credit of 10% of the home's purchase price, up to a maximum of $7,500.
 
* This tax credit DOES have to be repaid, in installments of $500 per year over 15 years.
 
Here's the official FAQ page for the 2008 Federal Housing Tax Credit.
 
 
2.  Homes purchased in 2009
 
First-time home buyers who purchase a home on or after January 1, 2009 through November 30, 2009 may be eligible for a tax credit of 10% of the home's purchase price, up to a maximum of $8,000.
 
* This tax credit does NOT have to be repaid.
 
The credit can be taken on either the 2008 or 2009 tax return.
 
Here's the official FAQ page for the 2009 Federal Housing Tax Credit.
 
 
Regarding both 2008 and 2009 Tax Credits:
 
A 'first-time home buyer' is defined as someone who has not owned a home for three years.  In order to keep the entire credit they must own the new home as a primary residence for a full three years.
 
The tax credit is phased out for single buyers with modified adjusted gross income in the $75,000 to $95,000 range, and for jointly filing married buyers in the $150,000 to $170,000 range.
 
If the home buyer's tax liability is less than the tax credit that the buyer qualifies for, the government will still honor the credit, typically by writing a check for the balance.
 
 
Quick Reminder:  Tax Credit versus Tax Deduction
 
Tax deductions reduce the amount of your taxable income.  Tax credits are far more powerful because they directly reduce the amount of income tax that you pay.  For example, someone who pays $18,000 in taxes would only have to pay $10,000 after receiving an $8,000 tax credit.

 
Key Related Information:
 
Increased Energy-Efficiency Improvement Tax Credits
You can get tax credits for 30% of the cost of energy-efficiency improvements, up to $1500 or unlimited, depending on the project.

Mortgage Debt Relief Act and Debt Cancellation
This is not part of the new act, but it's worth mentioning because many people are not aware that it exists.  It allows people to not have to claim as income debt that was forgiven or cancelled through a foreclosure or loan modification from 2007 through 2012.
 
Sales Tax Deduction for New Vehicle Purchases in 2009

You can deduct state and local sales and excise taxes on the purchase of a new vehicle costing up to $49,500.  (Click the link to see timing and income restrictions.)

 

IRS Summary of Key Highlights of the American Recovery and Reinvestment Act of 2009