GET MORE INFORMATION ABOUT THE FEDERAL TAX CREDIT FOR FIRST TIME BUYERS. http://www.federalhousingtaxcredit.com/
The home purchase tax credit of $7,500 equals a free loan for first time home buyers. However, after June 30, 2009, those who were timid about venturing into the present real estate market will find that their hesitation cost them.
April 9, 2008-June 30, 2009 is the eligibility time span for the home purchase tax credit created by the new housing bill. If a potential home buyer has not owned a house during the past three years, and he/she can close before the end of June, they may be eligible for up to a $7,500 credit against their 2008 or 2009 federal taxes ($3,750 for a person filing single).
The new credit is expected to benefit thousands of buyers, but because the specifics of the tax credit have changed a s the Senate and House negotiated a final compromise, below is an overview of the credit in its final form:
Purpose: The basic idea of the tax credit is to jump-start housing sales and clear out unsold real estate inventories, as well as pull in new buyers. Within the designated time period, a buyer can purchase any house-new, old, any location, any condition, or in any price range-and the IRS will cut up to $7,500 off of the buyer's 2008 or 2009 tax bill.
Mechanics: For an eligible buyer who owes the IRS $4,000 on their total 2008 income tax bill, the $7,500 tax credit could wipe out everything they owe plus give them a $ 3,500 refund. The government calls the new tax credit "refundable," meaning that if the tax bill is less than the credit amount, one gets the difference back from the Treasury.
Eligibility: If an individual sold his/her home more than three years ago and now rents, they are eligible. Those who have never owned a home are also eligible. Those who are eligible for the tax credit and who close on a house before June 30, 2009, can claim a credit of up to 10 percent of the purchase price of the property, up to $7,500. If the buyer's adjusted gross income exceeds $150,000 ($75,000 for single buyers), the credit maximum begins to phase down. An eligible buyer can claim the credit by simply requesting it on his/her tax return for 2008 or 2009. Even if the home is purchased in 2009, the buyer can take the credit against his/her 2008 taxes by filing an amended return.
Ineligibility: Those who currently own homes are not eligible for the credit. In addition, individuals who are nonresident aliens, finance their property using a state or local housing agency's tax-exempt bond mortgage, or do not plan to use the house as their principal residence are not eligible. Buyers cannot use both the new federal credit and the District's first-time-buyer credit program-no double-dipping is allowed.Caution: Unlike some other tax credits, this one requires beneficiaries to repay the credit. In the second tax year after purchase and continuing for up to 15 years, taxpayers are required to make pro rata repayments to the government on their federal filings.
A 15-year payback period for the full $7,500 credit is $500 a year. If the house is sold before the end of the repayment period and there is no gain on the sale, the homeowner will not be expected to pay the remainder of the credit back from the proceeds. If there is a net gain, the homeowner will be required to pay the remaining balance, however the "recapture" cannot exceed the amount of gain. The federal government is taking on all or most of the risk that the value of the new house won't increase over time.
Tax-free loan: At its nucleus, the new tax credit functions as an interest-free loan for up to $7,500. Only the principal is paid back over time.
For more information on the home purchase tax credit, contact one of the members of the REALTOR®/Lender Committee or e-mail your questions to realtor/lender@ccar.net.
