Many of you have heard a number of different things regarding the tax credit for first time homebuyers. This post is intended to clear up some misconceptions. The following is based on information available as of July 30, 2008. As with any new law, there are a number of uncertainties that will not be determined until the law is carried out. This post is neither indended to encourage nor dissuade your descision on whether to apply for the tax credit.
On July 30, 2008, President George Bush signed the Housing and Economic Recovery Act of 2008 (H.R. 3221), with the goal to stimulate the economy. The Act allows a $7,500 tax credit for qualified first-time home buyers purchasing a home on or after April 9, 2008 and before July 1, 2009. The tax credit will work like an interest free loan.
First time homebuyers may choose to obtain a tax credit for ten percent of the sales price of their home, capping at $7,500. The amount is the same no matter how many people buy the home, married, single or other. There is no pre-purchase authorization, application or similar approval process. A qualified first time homebuyer will elect the tax credit on his or her Federal tax return.
Provided that the home is used as a primary residence (occupy it 50% of the time), any home located in the United Sates purchased by an eligible first-time homebuyer will qualify for the credit. However, property transferred between family members will not qualify for the credit.
In order to qualify for the credit, a taxpayer must have an adjusted gross income of $75,000 or less ($150,000 or less for a married couple). Remember, all income is counted, whether made inside or outside the U.S. In addition, the taxpayer must be a first time homebuyer – purchaser or purchaser’s spouse may not have owned a principle residence in the three years prior to the purchase. Note – the homebuyer or homebuyer’s spouse may have owned a vacation home or investment property.
Repayment period starts 2 years after the year filing for the credit. The loan must be repaid at a rate of 6.67% per year(that’s roughly $500 per year for the full credit of $7,500). REMEMBER - There is no interest that accrues on the amount received in the tax credit. If home is resold before 15 years, the remainder of credit is captured at sale. If the gain on the sale is less than the amount that must be repaid, the remaining portion of the liability will be forgiven.
There are still a number of uncertainties in this Act. The public has not been informed on how the IRS will keep track of these credits. However, as of July 30, 2008, there will not be a lien attached to the home. It is also unknown how two unmarried persons buying a home will be seen when one is a first time homebuyer and the other is not.
Keep a lookout for updates regarding this Act. There will be an overwhelming amount of information put out by a number of different sources in the coming months. Be careful where you get your information and feel free to contact me with any questions.
Colleen
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