First Time Homebuyer $7,500 Tax Credit

Internal Revenue Service
Image via Wikipedia

A new $7,500 tax credit for first-time home buyers is a temporary incentive from the government (Read all of HR 3221) to boost interest in real estate – but the time frame to take advantage of the credit is limited  (Purchases on or after April 9, 2008 until July 1, 2009).

The basics in regards to the Tax Credit; the tax credit must be paid back over fifteen years – so it’s much like an interest-free loan. But it remains a tremendous benefit worth discussing, and for some people, it could be just enough to make the difference between renting and owning.

Amount of Credit:
Ten Percent of the cost of home, not to exceed $7500.
Examples:

  • If a home costs $55,000, the allowable credit would be $5,500.
  • If a home costs $120,000, then the allowable credit would be $7,500.

Eligible Property:
Any single-family residence (including condos) that will be used as a primary residence.

Refundable:
Reduces income tax liability for the year of purchase. Claimed on tax return for that tax year.
Individuals should consult a professional tax advisor for exact tax calculations.
Examples:

  • If an individual’s actual tax liability was $5,000, then after the tax credit is applied the purchaser would receive a total refund of $2,500. The refundable amount is the difference between the $7,500 tax credit and the amount of one’s tax liability.
  • If an individual’s actual tax refund was $2,000, then after the tax credit is applied the purchaser would receive a total refund of $9,500.

Income Limit:
Individuals whose Form 1040 filing status is single (or head of household) are eligible for the tax credit if their income is no more than $75,000. Individuals who file a joint return may have no more than $150,000 in income. Individuals with incomes between $75,001 and 94,999 (single) or $150,001 and $169,999 (filing jointly) are eligible for a partial tax credit. Individuals with incomes greater than $95,000 (single) or $170,000 (filing jointly) are not eligible for this tax credit.

First-time Homebuyer Only:
Purchaser (and purchaser’s spouse) may not have owned a principal residence in three years previous to purchase.

Recapture:
A portion (6.67% of credit) is to be repaid each year for 15 years. If home is sold before 15 years, then remainder of credit is due in the year of the sale.

  • If a homebuyer claims the $7,500 credit in 2009 on their federal income tax return for a closing that occurred in 2008, then the credit is received in 2009, so repayment begins in 2010 with an annual repayment amount of approximately $500 a year.
  • If the homeowner dies, their heirs do not have to pay back the remaining balance.
  • If the house is sold before fifteen years have passed and the home’s appreciation is less than the amount needed to be to paid back, the loan is forgiven.
  • If the home is turned into a rental or investment property, the pay back balance is due in that year.

Effective Date:
Purchases on or after April 9, 2008 until July 1, 2009

  • If I’m qualified for the tax credit and buy a home in 2009, can I apply the tax credit against my 2008 tax return?
    Yes. The law allows taxpayers to choose (”elect”) to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008. This means that the 2008 income limit (MAGI) applies and the election accelerates when the credit can be claimed (tax filing for 2008 returns instead of for 2009 returns). A benefit of this election is that a home buyer in 2009 will know their 2008 MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.
  • For a home purchase in 2009, can I choose whether to treat the purchase as occurring in 2008 or 2009, depending on in which year my credit amount is the largest?
    Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.

For furhter info on the $7,500 Tax Credit visit Your Mortgage Planner 2.0 Blog

Reblog this post [with Zemanta]
Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: