Tax credit for home buyers
Last week, the Senate verbally approved the Fix Housing First Act, an important amendment to their version of the Economic Stimulus Bill. The piece of legislation and the Stimulus Bill are still awaiting Senate and House negotiations, but could provide all home buyers of primary residences over the next year with a tax credit of $15,000 or 10 percent of the cost of the home, whichever is less. The credit will not need to be repaid unless the home is sold within two years of purchase. This Senate's version of the tax credit, if implemented, will replace, or “sunset” the current $7,500 credit.
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Should the legislation become a law, it will act as a major incentive for home buyers and, coupled with several years of pricing corrections could boost the number of home sales around the country. Until then, the current $7,500 tax credit for first-time home buyers is in effect. Below is a summary of the current law.
Expires June 30, 2009!
1. Who is eligible?
- First-time homebuyers or any homebuyers who have not owned a principal residence in the last three years
2. How does it work?
- Eligible purchasers can claim the $7,500 credit on their annual tax return form
Amount of credit: 10% of cost of home or a maximum of $7,500
3. Repayment:
- Two years after the credit is claimed, the homebuyer will have to start paying it back.
- 15 equal annual installments will have to be paid back to the IRS every year.
(1) 6.67% of the borrowed amount or a maximum of $502
- If home is sold before 15 years, the remainder of the loan will have to be repaid to the IRS upon the sale.
(1) Part of the liability can be forgiven if the gain on the sale is less than the amount of the loan.
- Restrictions:
- Home purchase time limit:
(1) Homes purchased on or after April 9, 2008 and before July 1, 2009
- Home must be a single family residence (including condos, coops) that will be used as a principal residence.
- Home must be located in the United States.
- Home cannot be financed through mortgage revenue bonds.
- Income restriction:
(1) To qualify for full $7,500 credit, the taxpayer must make no more than
a. $75,000 for single returns
b. $150,000 for joint returns
(2) To still qualify for credit but at a lesser amount, the following income caps apply
a. $95,000 for single returns
b. $170,000 for joint returns
For more information on the tax credit:
http://www.realtor.org/gapublic.nsf/files/hbtaxcreditqa2008.pdf/$FILE/hbtaxcreditqa2008.pdf
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