Tax Credit to 1st Time Home Buyers To Help With Down Payment
Last July, Congress initiated a new law called the Housing and Economic Recovery Act of 2008.
The intent of this law was to fix the multiple ills affecting the housing market, with the expectation that all would be right again with the economy. As we now know, this effort at economic rescue wasn’t enough. However, there are parts of the law that, over time, may help the housing market recover.
One of these is the first-time homebuyers tax credit. If you qualify for this credit, the US Treasury will make you a 15-year interest-free loan of $7,500 to help you buy a home.
We’re talking about the Internal Revenue Code where there are multiple definitions, limitations, qualifications, expectations, etc. that only a dedicated tax professional will understand.
Generally speaking, this is how the program works. First, you (and your spouse, if you’re married) have to be a first-time homebuyer. This doesn’t actually mean what it says. It means that you can’t have owned a home for three years prior to your purchase.
Next, to receive the full $7,500 tax credit, your income, if single, can’t exceed $75,000. If you’re married and filing jointly, the limit is $150,000. You can go over these limits by up to $20,000 and still get a partial credit. Income generally means salary, wages, interest on investments, etc. before deductions and exclusions.
As an additional requirement, you must have made your home purchase from April 9, 2008 to July 1, 2009. So, if you qualify, you have another eight months to buy a home and receive the credit.
Because this is a tax credit and not a tax deduction, it reduces your tax liability dollar for dollar. And if your tax liability is less than the amount of the credit, the excess will be paid to you in the form of a refund. Thus, if your tax liability for the year in which you use the credit (2008 or 2009) is $5,000 and you qualify for the full $7,500 credit, you will receive a refund check for $2,500.
As noted above, this tax credit isn’t just a gift from your government. It’s a loan. If you use the credit, starting in the second tax year after your purchase, your taxes will go up by $500. This will continue for 15 years. If you sell the house before that, you must pay back the unpaid balance of the credit, up to the amount of your gain on the resale. If the gain isn’t enough to cover what you owe, you’re off the hook. The US Treasury will write off the difference.
An interest free loan is nothing to scoff at. If you borrowed $7,500 at 7 percent interest and paid it off over 15 years, your interest cost would be $4,773. This tax credit, coupled with the fact that sellers in the home market are begging for buyers, makes this an ideal time for first-time homebuyers to purchase a home.
For expert advice please contact your tax professional. For more information on this first-time homebuyer tax credit, go to www.federalhousingtaxcredit.com. For all your real estate needs contact us at www.PikesPeakHomeLiving.com.