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NYS Tax Credit Overview and FAQ
Published by Joseph Rand on Wednesday October 7, 2009 6:49 PM
People have been asking about the first-time home buyer tax credit now available in New York State. It's a little complicated, so we're going to try to explain how it works. If you want to check out the government's official site on the program, go here.
Here's the lowdown: if you are a first-time home buyer in New York State, and get a fixed rated loan, you can get a New York State income tax credit for 20% of your yearly mortgage interest through the life of the loan. So if you pay $10,000 in mortgage interest in the first year of your new loan, you'll get a NYS tax credit for $2,000, while the rest of your mortgage interest will still be deductible as normal. (For an explanation of how a tax credit is different, and better, than a tax deduction, check this out.)
Okay, that's the overview. Now to some of the nitty gritty:
Threshold Qualifications
Here are the threshold qualifications:
1. You have to be a first-time home buyer.
You cannot have lived in a home that you owned within the past three years prior to closing. So if you owned investment real estate that you didn't live in, you qualify, but you need to sell that investment real estate by the time you close on the purchase for which you want the credit.
2. You have to earn below a certain level of income.
The tax credit is only available to people at certain income levels. For example, a two-person household in Westchester County cannot make more than $126,360, in Rockland $122,400, in Orange and Dutchess $97,061, and in Putnam $92,160. Each county is different, and the qualification also depends on how many people who make an income are living there as well as whether the property you're buying is in a "target" area. You can find the full range of income qualifications on the official site here, and income qualifications for the Hudson Valley counties broken out more easily here.
3. You have to buy a property that qualifies by not being too expensive.
The credit is only available on properties that are below certain limits set for each county in the State. (The property has to be in New York State, by the way). The limits are set relatively high, so most people who qualify on an income level are probably going to be purchasing a property that qualifies. For example, the property cannot be appraised above
$637,640 in Westchester, Rockland, or Putnam, or above $387,740 in Orange or Dutchess.
Those are the fundamental requirements. If you already own a home, you can't get it. If you make too much money, you can't get it. And if you're buying a $1,000,000 home, you can't get it.
Other Qualifications
Also, even if you pass these threshold qualifications, you have some other requirements, such as:
You have to pay a fee to apply of $250 for loans up to $100,000, and $500 for loan over $100,000.
You have to get a fixed rate mortgage.
You must occupy the home as a primary residence.
You can't use the property for a commercial business.
You can't purchase a home on more than 5 acres of land.
Your loan must be federally insured.
You can't have used more than 15% of your CURRENT residence for business or commercial purposes (as indicated on your most recent tax returns).
Your loan CANNOT be a SONYMA loan.
You can only buy a two-family home (or a 3-5 family home) if it is at least 5 years old and was used only as a residence for the past 5 years
(Special considerations apply if you are buying in a "Target Area," which is an area designated by the federal government as "economically distressed." If you're interested in purchasing in a Target Area, the government will waive some of the requirements set out above. You should check with a loan officer if that's your plan, because the exceptions become too complicated for general treatment here.)
Frequently Asked Questions
Some frequently asked questions about the New York State First-Time Home Buyer incentive program, the Mortgage Credit Certificate. The state has also set up its own FAQ, so you might want to check out the official site.
Q. Do I have to use a special bank?
No, any mortgage bank or broker that is participating in the program can offer the program. If you're looking for a good mortgage officer, you can check out Rand Mortgage, or I can recommend someone if you email me.
Q. How do I know whether I qualify based on my income?
The income qualifications are different for each county. We put together a simple chart showing the income limits for each county here.
Q. How do I know whether I qualify based on the purchase price in my county?
You won't qualify if you're purchasing a property that's too expensive, so we put together a simple chart where you can see the purchase price limits for each county.
Q. Do I have to file a special application?
Yes, you do. You should get one from your loan officer, who will help you with the paperwork and register you for the program. You also need to pay a special application fee, up to $500 for loans above $100,000.
Q. Is there a deadline to claim the tax credit?
There's no formal deadline, but the MCC program only has a certain amount of money. The initial allocation was for about $100 million in new mortgages. The state has said it expects that amount to last for months. We're not so sure, so if you are interested you should move quickly. If you remember, "Cash for Clunkers" was so successful that the federal government had to shut it down almost immediately because it ran out of budgeted money.
Q. How much of a tax credit do I get?
You get a state tax credit for 20% of the mortgage interest you pay every year until your mortgage loan is "extinguished." So if you pay $10,000 in mortgage interest next year, you get a $2,000 tax credit. And you get that credit for as long as you keep up with the loan and you keep the home as your primary residence. If you want to try to calculate how much you might save, check out the state's tax calculator.
Q. What if I don't owe any state tax at the end of the year?
The tax credit cannot exceed your state tax liability. Thus, if you are supposed to get a $2,000 tax credit, but you only owe $500 in state taxes, you won't have to pay that $500 in taxes, and the other $1,500 can be carried forward for up to 3 years. So if in the following year you owe $5,000 in state credits, you can apply that $1,500 in credits.
Q. How is a tax credit different from a tax deduction?
We have a long explanation of that here. But the short answer is that a tax CREDIT is a reduction in the taxes that you owe, while a tax DEDUCTION reduces your taxable income. The tax credit is better, because you get the whole amount.
Q. If I get the tax credit, does that mean I can't deduct my mortgage interest on my federal taxes?
No, you can still deduct the remaining mortgage interest (meaning the mortgage interest that you didn't get the credit on) from your state and federal taxes. That is, if you pay $10,000 in mortgage interest in year one, you get $2,000 (or 20%) as a state tax credit. The remaining $8,000 will be subject to the normal mortgage interest tax deduction.
Q. Do I get the tax credit on both my state and federal income taxes?
You only get the tax credit on your New York State income taxes. This is a state program, not a federal program.
Q. Can I get the tax credit if I closed a few weeks ago?
No, you can only get the tax credit if you complete your application prior to closing. Remember that you still might qualify for the federal $8,000 tax credit, though, if you already closed this year and you otherwise qualify.
Q. Can I get the state tax credit if I also try to get the $8,000 federal first time home buyer tax credit?
Yes, you can get both.
Q. Does the tax credit stay the same every year?
No, the tax credit will always be 20% of your mortgage interest, but the amount of the credit it will change as the amount of interest you pay each year goes down. Remember that mortgage loans are structured so that in the first few years you mostly pay down interest, not principal. As time goes by, though, the amount of principal you pay off each month goes up, and your mortgage interest goes down. As the mortgage interest goes down, your credit will go down.
Q. What if I already own a home with someone else?
If you have an ownership interest in the home, you don't qualify.
Q. What if I am a veteran?
If you are a veteran, the state will waive its first time home buyer requirement.
Q. What if I move out of the home in five years?
If you are no longer living in the home, you can't get the credit. You won't have to pay it back for the years you lived in the home, but you can't get it for years that you don't live in the home.
Q. What kind of home do I have to buy? What if I want to buy a coop?
You can qualify for the tax credit if you are buying a cooperative apartment, a condominium, or a 1-4 family home.
Q. Does the tax credit apply to new construction?
Yes, for condos, coops, or single-family homes.
Q. Can I get the tax credit with an adjustable rate mortgage?
No, you have to get a fixed-rate mortgage.
Q. Can I get the tax credit if I get the loan from a family member?
No, the tax credit is only good for a federally insured loan, not a personal loan.
Q. Can I get the tax credit if I am refinancing my current home?
No, only for new purchases.
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