Homeowners, Low-Income Workers Eligible for Federal Tax Breaks

In light of the economic crisis, and with tax season right around the corner, the Federal Reserve Bank of St. Louis wants to make sure taxpayers know about two new tax breaks and one that has been around for awhile.

The two new provisions include a tax credit for first-time homebuyers and an additional tax deduction for property owners. These are temporary tax breaks that were included in the Housing and Economic Recovery Act of 2008. The act, signed into law in July, is meant to help homeowners and to boost the housing industry.

The new tax credit is a loan for first-time homebuyers who have purchased a house between April 9, 2008 and July 1, 2009. The loan must be repaid over the course of 15 years. However, it is interest-free and provides the homeowner with immediate access to capital.

The temporary tax deduction is for homeowners who do not itemize deductions on their tax returns. The deduction will benefit low-income taxpayers, young families and those who are close to paying off their mortgages and who do not have significant reason to itemize their tax returns. The deduction will be in addition to the standard deduction claimed by those who do not itemize their federal tax returns.

For details on either of these tax credits, go to www.irs.gov.

A third tax break that regularly goes unclaimed by many taxpayers is the Earned Income Tax Credit (EITC). Millions of low-income, working-class Americans are unaware that they are eligible to receive thousands of dollars through the federal EITC.

A booklet from the St. Louis Fed—You’ve Earned It! What the Earned Income Tax Credit Can Do for You—explains how the tax credit works and who qualifies. Eligible taxpayers can receive up to $4,500 with their income tax refund. The typical refund in the Bank’s Eighth District has been about $2,000.

Copies of the booklet are free and may be ordered by calling 314-444-8761 in St. Louis; 501-324-8296 in Little Rock, Ark.; 502-568-9202 in Louisville, Ky.; and 901-579-4101 in Memphis, Tenn.

The booklet also is available online at www.stlouisfed.org/~/media/Files/PDFs/Community Development/Booklets Guides and Brochures/EITC-brochure.pdf.