For those you wondering about the $7,500.00 tax credit and how it applies to your situation as a first time home buyer, here are some details that might help you decide if it is worth pursuing.
This is a “tax credit”, not a deduction. A tax credit is a dollar for dollar reduction on the final amount owed (tax liability) on your income tax returns. The maximum credit amount is $7,500.00. If by chance your tax liability is less than the $7,500.00, then you could also receive a “refundable” credit from the IRS when all is said and done.
Naturally, there are strings attached to this program. The biggest is that the tax incentive or credit must be paid back. Any Buyer who claims the credit, must pay it back over 15 years. Consider it an interest free loan where you pay back the total amount borrowed in increments of 6.67% each year over 15 years. For example, if you were credited the full $7,500.00 then repayment would be about $502.50 a year. There is no interest charge on the outstanding amount while you are in the process of repaying the credit. If you take the credit in 2008, the first payment would be made when file your 2010 tax returns.
If you happen to sell your home before the 15 years are over then the remaining amount would be taken out of your proceeds (profit) from the sale and given to the IRS. If there is no gain or even a loss taken on the sale of the home, then you don’t have to repay the credit. Shortfalls between the profit of your home sale and the amount owed are forgiven as well. This is good news!
Now, what are the qualifications? In short:
- First-time home buyers who have had no home ownership interest in a principle residence in the previous three years.
- Home must be purchased between April 9, 2008 and July 1, 2009
- Income restrictions: Single taxpayer with adjusted gross income up to $75,000 and married taxpayers with joint adjusted gross income up to $150,000 are eligible for the full $7,500. A reduced credit is available for incomes higher than the above range.
For more information visit the National Association of Realtors summary page.
As with any tax law change, we recommend you consult with your tax advisor regarding your specific situation and questions about this provision. These highlights of housing bill H.R. 3221 was based on information available on July 30, 2008.