Real Estate
2008-12-31 09:59:00
Tax credit for first-time home buyers
Question: Can you tell me about the $7,500 tax credit that is available for first-time home buyers?
Answer: First-time home buyers who purchase(d) a principal residence on or after April 9, 2008 and before July 1, 2009 are eligible for the credit. A first-time home buyer is defined as an individual who has not had an ownership interest in a principal residence in the three-year period before the date of home purchase, and someone who has never taken advantage of the first-time home buyer credit. In the case of married couples, both must be first-time home buyers.
For other groups purchasing a home, the statute is less clear. Take a couple who is planning to be married in 2009. The bride-to-be and her fiancé purchased a home on June 1, 2008. She previously owned a home in 2006 while her fiancé has never owned one. The bride will not qualify for the tax credit for the 2008 purchase because she owned a home after June 1, 2005 (three years before the date of the couple’s purchase). But, since both were single when they purchased the home, the groom may qualify for the credit.
He may be eligible because both of them will file tax returns as Single for 2008. (If they married in 2008, neither would be eligible). When purchasers file a joint tax return, both must be first-time buyers. Obviously there are other types of households, and in some of these cases the statute could be somewhat ambiguous. As for any major financial investment, purchasers should consult a tax advisor.
There are some income restrictions with this program. Those restrictions are based on the tax filing status the purchaser claims when filing his/her income tax return. The maximum income for individuals filing as “Single” (or “Head of Household”) is $95,000; individuals filing a joint return may have income of no more than $170,000.
Remember, this is not a deduction but a TAX CREDIT. The credit directly reduces the total amount of taxes owed and is refundable. When the buyer files his/her taxes, for the year he or she purchased the home (2008 or 2009), the taxpayer will be able to subtract the amount of the credit from his/her Federal income tax liability, increasing their refund or reducing the amount owed.
The amount of the credit is based on the price of the home being purchased.
The tax credit is equal to 10 percent of the purchase price of the home up to $7,500. The full credit is available for single buyers whose adjusted gross income is less than $75,000. If the buyer’s adjusted gross income is greater than $75,000 and his/her home purchase qualifies the buyers for the full credit, the credit phases out. For married couples filing jointly, the credit begins to phase out at an adjusted gross income of $150,000.
The tax credit is not completely free money for buyers to keep. It has a payback provision that makes it similar to an interest free-loan. Two years after the credit is claimed, buyers will have to begin repaying that “loan” so that the credit is paid back in full over the course of 15 years. For first time buyers who qualify for the full credit, the payback amount is $500 per year. Those getting less than the full credit pay equally over the 15 years (which is a rate of 6.67% per year). If a qualifying home is resold before the credit is repaid, the seller will have to immediately pay the outstanding balance of the credit. If the home is sold at a loss, then nothing more is owed.
All in all, this tax credit makes for the best time to buy a home in many years. In addition to the tax credit, first-time buyers purchasing a home will be able to deduct their mortgage interest payments on their taxes, as well as their property taxes. In addition, when they sell that home, those owners will be entitled to the capital gains tax exclusion. And of course, these first-time buyers will at last be able to feel the pride and security of owning their own home.
