Interest Free $7,500 for First Time Home Buyers
If you have or will close on a house between April 9, 2008, and June 30, 2009, you could be eligible for the tax credit. It can be a new or old home, a house in any location or condition, and within any price range so long as it is bought during the selected time period
Essentially, Congress is offering tax credits to draw in more first time home buyers in order to jolt housing sales and sell off high real estate inventories.
Close on a house before next June 30, and you could claim a credit of up to 10 percent of the purchase price of the property up to a maximum of $7,500. If your adjusted gross income exceeds $150,000 ($75,000 for singles), the credit maximum begins to decrase in increments. You cannot claim the credit if you are a nonresident alien, financed the property using a state or local housing agency tax-exempt bond mortgage, or do not plan to use the house as your principal residence.
After you’ve purchased the home, the IRS will reduce your tax bill by up to $7,500 for either this year or next. Moreover, the new home purchase tax credit is what the government calls "refundable." If your tax bill is less than the credit amount, you get the difference back from the Treasury. For example, if you're a qualified buyer of a house this year and you owe the IRS $3,500 on your total 2008 income tax bill, the $7,500 tax credit would not only “pay” your taxes, but you would also receive a $4,000 refund.
If you own a home now that was closed on before April 9 of this year, you don’t qualify. If you have never owned a home or sold a home more than three years ago and now rent, you are eligible.
Unlike some past tax credit programs, this one requires the recipients to repay the credit over an extended period of years. Starting in the second tax year after purchase and continuing for up to 15 years, taxpayers are expected to make pro rata repayments to the government on their federal filings. Over a 15-year payback period for the full $7,500 credit, the cost would be $500 a year. If you sell the house before the end of the repayment period, and you have no gain on the sale, you won't be expected to pay the credit back from the proceeds. If you have a net gain, the "recapture" cannot exceed the amount of your gain. In other words, the federal government is taking on all or much of the risk that the value of your new house won't increase over time.
The new tax credit operates much like an interest-free loan for up to $7,500. You pay the principal back little-by-little over time, but there's no interest charged on it.
If you pass the eligibility tests and buy before June 30, you can claim your credit simply by requesting it on your tax return for either 2008 or 2009. Even if you purchase in 2009, you can take the credit against your 2008 taxes by filing an amended return. The homebuilders association is launching an educational website, www.federalhousingtaxcredit.com, with additional information for consumers.