Last week, the President signed historic legislation to spur growth in the housing sector. An important part of legislation is a tax credit for first time home buyers. Under the new law, beginning April 9, 2008 (yes this is retroactive!), first time home buyers to get up to a $7,500 tax credit from the purchase of a single family home, townhome, or condo.
A first time home buyer is anyone who has not owned a home during the past three years and is a U.S. citizen who files taxes. (Some homeowners that do not file taxes may qualify. You can find answers to questions like this and many others at www.federalhousingtaxcredit.com and www.nahb.org/mythbuster.)
To qualify for the tax credit, buyers must close on their home purchase between April 8, 2008 and prior to July 1, 2009. You can claim the entire tax credit if single or head-of-household tax filers have an adjusted gross income that is less than $75,000. If you are married, this number jumps to $150,000. Single or head-of-household tax filers who earn between $75,000 to $95,000 (or married filers earning between $150,000 to $170,000) are eligible to receive a partial first-time home tax credit.
The tax credit can be taken in 2008 or 2009. It works as follows. If a taxpayer pays less than $7500 in federal income tax, the government will write them a check for the difference. Those who pay more than $7500 in federal taxes, would reduce their tax bill by the amount of the credit allowed.
There is a catch -- would'nt you know it! The catch is that there is a payback provision. Essentially, the credit is like an interest-free loan that must be paid back over 15 years. If you claim the $7500 credit, you would have to repay the credit at $500 per year. If you sell your home, then the remaining credit would be due from the proceeds of the home sale. If there is no profit, however, the remaining credit payback would be forgiven.
This is a great option for first time home buyers to consider when thinking about moving forward on the purchase of a home. If you have any questions about this, don't hesitate to contact Team Jodi. We would be happy to answer any and all questions about this new legislation.
See also:
Jodi Bakst, CRS, GRI, ABR, CDPE, CLHS
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The $7,500 credit is for people buying their first homes, and was passed as part of the Housing and Economic Recovery Act of 2008 and signed into law in July. To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Individual buyers with income of up to $95,000 and couples with income up to $170,000 are eligible for a partial credit.
Buyers who have not owned a home in the past three years can take a tax credit worth 10% of a home's sale price, up to $7,500, whichever is smaller.
The credit is good for homes closed on after April 9, 2008 and before July 1, 2009, and can be taken on taxes filed during 2008 or 2009. Even buyers who bought a home before the bill passed, but after April 9, can claim the credit.
Unlike tax deductions, which only offset taxes by lowering taxable income, the tax credit is a straight dollar-for-dollar deduction of your tax bill. So a buyer who would ordinarily pay $8,000 in taxes would pay just $500.
It's also "refundable," which means if a buyer's taxes are less than $7,500, the government will send them a check for the difference. For example, if a couple's income generates a tax bill of $5,000, the government will refund all of that plus $2,500.