New Law Offers First-Time Home Buyer Tax Credit

The new housing bill recently signed into law offers the incentive to get the first time home buyer off the proverbial fence and into the tangible house.   Congress is targeting the first time home buyer and giving a compelling reason to close on a house before July 2009.   But what exactly is this incentive?  

To be eligible, you must not have owned a home within the last 3 years, be a U.S. taxpaying citizen, and close any home as a primary residence retroactive from April 9, 2008 through July 1, 2009.  

The full amount available as a tax credit is $7,500 if your adjusted gross income is less than $75,000.   Married couples can earn up to $150,000.   Partial credit is available to those who earn more than these amounts up to the maximum of $95,000 for singles and $170,000 for couples.   Consult with your accountant as what to expect from the government in regards to your household income.  

A tax credit is a refundable credit.   Any amount you owe in federal taxes would be reduced by the credit amount and you would receive the difference.   A refund owed to you would be added to the tax credit amount resulting in a larger refund.   Tax credit can be taken either on the 2008 return or the 2009 return.   It™s your option.  

The major stipulation is the home must be purchased as an owner occupied residence.   Buyers may not have owned a home in the past three years.   All housing types qualify to receive the tax credit!  

The tax credit is an interest free loan with a 15 year term.   Thus, a $7,500 credit would be repaid at $500 per year for 15 years.   Should the home sell with a profit prior to the expiration date, the remaining balance becomes due.   If the home sells within that time at a loss, then the remaining balance is forgiven.  

The government wants you to get out of your rental agreement, which is essentially negative cash flow, and into a home of your own.   More importantly, inventory is plentiful so you have a bounty of choices, and interest rates are still historically low so your monthly housing expense affords you more over the long term. Now is the time to buy if you want the tax credit to apply.    

© 2008 Michael S. Amers

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