The National Association of Homebuilders has been a leading source of information regarding the $7,500 federal tax credit and it’s affect on stimulating the U.S. housing industry. In a recent update on their website they discuss ways that you could possibly benefit from the tax credit prior to the purchase of a new home.

Here is the latest update from NAHB regarding this possible tax loop that may benefit homebuyers:

First-time homebuyers can accelerate the receipt of the $7,500 from their tax credit and even apply it toward a down payment, according to NAHB tax analyst Robert Dietz.

NAHB’s Web site explaining the tax credit - www.federalhousingtaxcredit.com -has been inundated by home builders and prospective buyers seeking information on the new benefit.

One of the most commonly asked questions since the credit was enacted concerns how it can be used for a down payment, and new questions and answers related to this issue recently have been added to the Web site. (See questions 19 to 21.)
First-time home buyers (defined as those who have not owned a principal residence for three years) should be aware of several mechanisms that can narrow or close the gap between the time they purchase their home and the time they take the deduction on their income tax return, said Dietz.

NAHB successfully pushed for a rule that allows qualified home buyers making a home purchase in 2009 before the July 1 cut-off date to claim the $7,500 credit on their 2008 tax return - in effect, one year early. Also, homebuyers who purchase a home after filing their 2008 tax return with the IRS in 2009 may file an amended tax return that includes the credit.

As a result, the qualifying homebuyer can significantly reduce the time it takes to receive the cash benefit of the tax credit.

More fundamentally, strategic homebuyers have a more effective option in their hands. Prospective home buyers, who are certain they qualify for the credit based

Using The $7500 Tax Rebate If You Are A First Time Buyer
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on the income limits and the first-time buyer test, can adjust their income tax withholding today through their employer.

IRS Form W-4, which is typically submitted by most workers when beginning a new job, allows taxpayers to adjust the amount of automatic income tax withholding in anticipation of certain tax credits. The form states, “You can take projected tax credits into account in figuring your allowable number of withholding allowances.”
Home buyers who expect to claim the tax credit can reduce their withholding, thereby increasing their take-home pay (net of income tax) and allowing them to begin to claim the expected tax credit for use as a down payment.

This is done by adding the expected credit amount to line 5 or reducing line 6 (additional withholding) of the Deductions and Adjustments Worksheet on the W-4 and recalculating their income tax withholding. Similar adjustments can be done by homebuyers making quarterly estimated tax payments.

Homebuyers must be careful to understand the rules for both withholding and the tax credit before submitting a revised W-4 form to their employer. In particular, buyers should consult IRS Publication 919, or check with a tax practitioner, to determine how much to adjust their withholding.

The 2008 version of the IRS publication allows taxpayers to enter the anticipated credit amount on line 9 of worksheet 8, with “other credits.” Buyers must be careful not to reduce their withholding by more than the amount of their expected tax credit, or tax penalties may apply when they file their income tax return.
NAHB is also studying other tax and housing finance regulatory recommendations to ensure that the tax credit program is an effective stimulus for the housing market and the economy.