Did you know that you may be eligible for the First-Time Home Buyer Tax Credit that is part of the Housing and Economic Recovery Act of 2008. This tax credit is designed to encourage first-time home buyers to purchase their first homes. Combine this tax credit with the fact that home prices are relatively lows and interest rates are at historical lows, it may be an ideal time for many first-time home buyers to purchase homes. How the law works....
1. The tax credit is available for homes purchased between April 9, 2008 and July 1, 2009
2. The tax credit amount is 10% of the price of the home not to exceed $7,500
3. A first time home buyer is defined as anyone who hasn't owned a home for the past three years
4. To qualify for the full tax credit single tax payers can have incomes of up to $75,000 and married couples up to $150,000. Single tax payers with incomes between $75,001 and $94,999 or $150,001 and $169,999 (joint returns) are eligible for a partial tax credit. Single tax payers with incomes greater than $95,000 or $170,000 (joint return) are not eligible for this tax credit.
5. The tax credit is like an interest free loan and must be paid back over a 15 year period beginning the second year after the tax credit is taken, normally at $500 a year 15 years.
This is a tax credit and not just a tax deduction. A tax credit is an actual dollar for dollar reduction in your tax bill. That means that the credit is subtracted from the amount of income tax that you owe to the IRS
Since the credit has to be repaid, it is more like an interest free loan. (This may change as there is talk that in the next round of stimulus packages past by congress to make it an actual tax credit that doesn't have to be paid back, even for other than first time buyers, including investors, but that is a maybe in the future.)
6. If a buyer claims the credit in 2009 on their federal tax return for a closing that occurred in 2008, then the credit is received in 2009, then repayment begins in 2010 with an annual repayment amount of approx. $500/year.
7. If the homeowner dies, their heirs are not required to pay back the remaining balance.
8. If the home is sold before 15 years have passed and the it's appreciation is less than the amount needed to be paid back, the loan is forgiven.
9. If the home is converted into a rental or investment property, the pay back balance is due in the year.